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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER: 001-33097
 GLADSTONE COMMERCIAL CORPORATION
 (Exact name of registrant as specified in its charter)
 MARYLAND
    
    02-0681276(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1521 WESTBRANCH DRIVE, SUITE 200
MCLEAN, VIRGINIA 22102  (Address of principal executive office)
 (703) 287-5800  (Registrants telephone number, including area code)
  (Title of Each Class)
    
    (Name of exchange on which registered)Common Stock, par value $0.001 per share
    
    NASDAQ Global Select Market7.75% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share
    
    NASDAQ Global Select Market7.50% Series B Cumulative Redeemable Preferred Stock, par value $0.001 per share
    
    NASDAQ Global Select Market
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Accelerated Filer þ
    

Non-Accelerated Filer o
    

Smaller Reporting Company o.(Do not check if smaller Reporting Company)
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GLADSTONE COMMERCIAL CORPORATION
FORM 10-K FOR THE YEAR ENDED
DECMBER 31, 2010
 TABLE OF CONTENTS
 PAGEPART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    19Item 1B. Unresolved Staff Comments
    
    
    34Item 2. Properties
    
    
    35Item 3. Legal Proceedings
    
    
    39Item 4. Removed and Reserved
    
    
    39PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    40Item 6. Selected Financial Data
    
    
    42Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    44Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    63Item 8. Financial Statements and Supplementary Data
    
    
    64Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    98Item 9A. Controls and Procedures
    
    
    98Item 9B. Other Information
    
    
    98PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    99Item 11. Executive Compensation
    
    
    99Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    99Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    99Item 14. Principal Accountant Fees and Services
    
    
    99PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    100EX-21EX-23EX-31.1EX-31.2EX-32.1EX-32.2
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Forward-Looking Statements
  
    
    our business and financing strategy;
    
    our ability to implement our business plan;
    
    pending transactions;
    
    our projected operating results;
    
    our ability to obtain future financing arrangements;
    
    estimates relating to our future distributions;
    
    our understanding of our competition and our ability to compete effectively;
    
    market and industry trends;
    
    interest and insurance rates;
    
    estimates of our future operating expenses, including payments to our
Adviser (as defined herein) under the terms of our Advisory Agreement (as defined
herein);
    
    projected capital expenditures; and
    
    use of the proceeds of our New Line of Credit (as defined herein), mortgage
notes payable and other future capital resources, if any.
  
    
    the loss of any of our key employees, such as Mr. David Gladstone, our
Chairman and Chief Executive Officer, Mr. Terry Lee Brubaker, our Vice Chairman and
Chief Operating Officer, or Mr. George Stelljes III, our President and Chief Investment
Officer;
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
    
    general volatility of the capital markets and the market price of our common
and preferred stock;
    
    risks associated with negotiation and consummation of pending and future
transactions;
    
    changes in our business strategy;
    
    the adequacy of our cash reserves and working capital;
    
    our failure to successfully integrate and operate acquired properties and
operations;
    
    defaults upon or non-renewal of leases by tenants;
    
    decreased rental rates or increased vacancy rates;
    
    the degree and nature of our competition;
    
    availability, terms and deployment of capital, including the ability to
maintain and borrow under our New Line of Credit, arrange for long-term mortgages on our
properties, secure one or more additional long-term lines of credit and raise equity
capital;
    
    our ability to identify, hire and retain highly-qualified personnel in the
future;
    
    changes in our industry or the general economy;
    
    changes in real estate and zoning laws and increases in real property tax
rates;
    
    changes in governmental regulations, tax rates and similar matters; and
    
    environmental uncertainties and risks related to natural disasters.
  
 Item 1.
    
    Business
 Overview
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Our Investment Objectives and Our Strategy
   Investment Policies and Policies with Respect to Certain Activities
 Types of Investments
 Overview
 Risk
FactorsOur success depends on the performance of our Adviser, and, if our Adviser
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makes
inadvisable investment or management decisions, our operations could be materially adversely
impacted
  Property Acquisitions and Net Leasing
 Risk Factors Highly leveraged tenants or borrowers may be
unable to pay rent or make mortgage payments, which could adversely affect our cash available to
make distributions to our stockholders
   Investments in Mortgage Loans
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Underwriting Criteria, Due Diligence Process and Negotiating Lease Provisions
  
    
    Credit Evaluation. Our Adviser evaluates each potential tenant for its
creditworthiness, considering factors such as management experience,
industry position and fundamentals, operating history and capital
structure. A prospective tenant that is deemed creditworthy does not
necessarily mean that we will consider the tenants property to be
investment grade. Our Adviser seeks tenants that range from small
businesses, many of which do not have publicly rated debt, to large
public companies. Our Advisers investment professionals have
substantial experience in locating and financing these types of
companies. By leasing properties to these tenants, we believe that we
will generally be able to charge rent that is higher than the rent
charged to tenants with unleveraged balance sheets and recognized
credit, thereby enhancing current return from these properties as
compared with properties leased to companies whose credit potential
has already been recognized by the market. Furthermore, if a tenants
credit does improve, the value of our lease or investment will likely
increase (if all other factors affecting value remain unchanged). In
evaluating a possible investment, we believe that the creditworthiness
of a prospective tenant is normally a more significant factor than the
unleased value of the property itself. While our Adviser selects
tenants it believes to be creditworthy, tenants are not required to
meet any minimum rating established by an independent credit rating
agency. Our Advisers standards for determining whether a particular
tenant is creditworthy vary in accordance with a variety of factors
relating to specific prospective tenants. The creditworthiness of a
tenant is determined on a tenant by tenant and case by case basis.
Therefore, general standards for creditworthiness cannot be applied.
    
    Leases with Increasing Rent. Our Adviser seeks to include a clause in
each lease that provides for annual rent escalations over the term of
the lease. These increases will generally be fixed; however certain
leases are tied to increases in indices such as the consumer price
index.
    
    Diversification. Our Adviser attempts to diversify our portfolio to
avoid dependence on any one particular tenant, facility type,
geographic location or tenant industry. By diversifying our portfolio,
our Adviser intends to reduce the adverse effect on our portfolio of a
single under-performing investment or a downturn in any particular
industry or geographic region. Total rental income consisted of the
following tenant industry classifications as of December 31, 2010 and
December 31, 2009:
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December 31, 2010
    
    
    December 31, 2009Percentage of
    
    
    
    
    
    
    Percentage ofIndustry Classification
    
    Rental Income
    
    
    Rental Income
    
    
    Rental Income
    
    
    Rental IncomeElectronics
    
    $
    6,165,788
    
    
    
    15.0
    %
    
    $
    6,164,789
    
    
    
    14.9
    %Healthcare, Education & Childcare
    
    
    6,145,415
    
    
    
    14.9
    %
    
    
    6,145,415
    
    
    
    14.8
    %Telecommunications
    
    
    5,447,365
    
    
    
    13.3
    %
    
    
    5,447,033
    
    
    
    13.1
    %Diversified/Conglomerate Manufacturing
    
    
    3,664,686
    
    
    
    8.9
    %
    
    
    3,664,686
    
    
    
    8.8
    %Chemicals, Plastics & Rubber
    
    
    3,130,133
    
    
    
    7.6
    %
    
    
    3,173,514
    
    
    
    7.6
    %Machinery
    
    
    2,332,672
    
    
    
    5.7
    %
    
    
    2,389,607
    
    
    
    5.8
    %Containers, Packaging & Glass
    
    
    2,330,715
    
    
    
    5.7
    %
    
    
    2,330,246
    
    
    
    5.6
    %Beverage, Food & Tobacco
    
    
    2,188,793
    
    
    
    5.2
    %
    
    
    2,188,755
    
    
    
    5.3
    %Printing & Publishing
    
    
    2,187,504
    
    
    
    5.3
    %
    
    
    2,189,033
    
    
    
    5.3
    %Buildings and Real Estate
    
    
    2,075,103
    
    
    
    5.0
    %
    
    
    2,025,668
    
    
    
    4.9
    %Oil & Gas
    
    
    1,282,582
    
    
    
    3.1
    %
    
    
    1,138,136
    
    
    
    2.7
    %Personal & Non-Durable Consumer
Products
    
    
    1,228,100
    
    
    
    2.9
    %
    
    
    1,354,721
    
    
    
    3.3
    %Automobile
    
    
    1,166,654
    
    
    
    2.8
    %
    
    
    1,166,654
    
    
    
    2.8
    %Personal, Food & Miscellaneous Services
    
    
    575,006
    
    
    
    1.4
    %
    
    
    575,006
    
    
    
    1.4
    %Home & Office Furnishings
    
    
    529,743
    
    
    
    1.3
    %
    
    
    529,743
    
    
    
    1.3
    %Insurance
    
    
    421,672
    
    
    
    1.0
    %
    
    
    722,866
    
    
    
    1.7
    %Diversified/Conglomerate Services
    
    
    308,105
    
    
    
    0.9
    %
    
    
    308,105
    
    
    
    0.7
    %$
    41,180,036
    
    
    
    100.0
    %
    
    $
    41,513,977
    
    
    
    100.0
    %
 
    
    Property Valuation. The business prospects and the financial strength
of the tenant are important aspects of the evaluation of any sale and
leaseback of property, or acquisition of property subject to a net
lease, particularly a property that is specifically suited to the
needs of the tenant. We generally require quarterly unaudited and
annual audited financial statements of the tenant in order to
continuously monitor the financial performance of the property. We
evaluate the financial capability of the tenant and its ability to
perform per the terms of the lease. We may also examine the available
operating results of prospective investment properties to determine
whether or not projected rental levels are likely to be met. We then
compute the value of the property based on historical and projected
operating results. In addition, each property that we propose to
purchase will be appraised by an independent appraiser. These
appraisals may take into consideration, among other things, the terms
and conditions of the particular lease transaction, the quality of the
tenants credit and the conditions of the credit markets at the time
the lease transaction is negotiated. The appraised value may be
greater than the construction cost or the replacement cost of a
property, and the actual sale price of a property, if we resell the
property in the future, may be greater or less than its appraised
value. We generally limit our property acquisition cost or value to
between $3 million and $30 million.
    
    Properties Important to Tenant Operations. Our Adviser generally seeks
to acquire investment properties that are essential or important to
the ongoing operations of the prospective tenant. We believe that
these investment properties provide better protection in the event a
tenant becomes bankrupt, as leases on properties essential or
important to the operations of a bankrupt tenant are typically less
likely to be rejected in the bankruptcy or otherwise terminated.
    
    Lease Provisions that Enhance and Protect Value. When appropriate, our
Adviser attempts to include provisions in our leases that require our
consent to specified tenant activity or require the tenant to satisfy
specific operating tests. These provisions may include, for example,
operational or financial covenants of the tenant, as well as
indemnification of us by the tenant against environmental and other
contingent liabilities. We believe that these provisions serve to
protect our investments from changes in the operating and financial
characteristics of a tenant that may impact its ability to satisfy its
obligations to us or that could reduce the value of our properties. We
generally also seek covenants requiring tenants to receive our consent
prior to any change in control of the tenant.
    
    Credit Enhancement.Our Adviser may also seek to enhance the
likelihood of a tenants lease obligations being satisfied through a
cross-default with other tenant obligations, a letter of credit or a
guaranty of lease obligations from each tenants corporate parent. We
believe that this type of credit enhancement, if obtained, provides us
with additional financial security.
 Underwriting of the Real Estate and Due Diligence Process
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Risk
Factors Potential liability for environmental matters could adversely affect our
financial condition
   
    
    The comparable value of similar real estate in the same general area of the prospective property. In this
regard, comparable property is difficult to define because each piece of real estate has its own distinct
characteristics. But to the extent possible, comparable property in the area that has sold or is for sale
will be used to determine if the price to be paid for the property is reasonable. The question of
comparable properties sale prices is particularly relevant if a property might be sold by us at a later
date.
    
    The comparable real estate rental rates for similar properties in the same area of the prospective property.
    
    Alternative property uses that may offer higher value.
    
    The cost of replacing the property if it were to be sold.
    
    The assessed value as determined by the local real estate taxing authority.
  Additional Investment Considerations
 Terms of Mortgage Loans
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Other Investments
    Joint Ventures
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Use of Leverage
 Non-recourse Financing
 Our Investment
Objectives and Our Strategy
  Recourse Financing
  Other Investment Policies
 Working Capital Reserves
  
    
    the acquisition of any property;
    
    the refinancing of the debt upon any property; or
    
    the leveraging of any previously unleveraged property.
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Investment Policies and Policies
with Respect to Certain ActivitiesUse of Leverage
 Holding Period for and Sale of Investments; Reinvestment of Sale Proceeds
     Investment Limitations
  
    
    invest in real property owned by our Adviser, any of its affiliates or any business in which our Adviser or any of its subsidiaries have invested except that
we may lease property to existing and prospective portfolio companies of current or future affiliates, such as Gladstone Capital Corporation, Gladstone
Investment Corporation and entities advised by our Adviser, so long as that entity does not control the portfolio company and the transaction is approved by
both companies board of directors (this policy may not be changed without the approval of our stockholders);
    
    invest in commodities or commodity futures contracts, with this limitation not being applicable to futures contracts when used solely for the purpose of
hedging in connection with our ordinary business of investing in properties and making mortgage loans;
    
    invest in contracts for the sale of real estate unless the contract is appropriately recorded in the chain of title;
    
    invest in any individual property with a cost in excess of 20% of our total assets at the time of investment;
    
    make investments in unimproved property or indebtedness secured by a deed of trust or mortgage loans on unimproved property in excess of 10% of our total
assets. Unimproved real property is property which has the following three characteristics:
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
    
    the property was not acquired for the purpose of producing rental or other operating income;
    
    no development or construction is in process on the property; and
    
    no development or construction on the property is planned in good faith to commence on the
property within one year of acquisition;
 
    
    issue equity securities on a deferred payment basis or other similar arrangement;
    
    issue debt securities in the absence of adequate cash flow to cover debt service;
    
    issue redeemable securities as defined in Section 2(a)(32) of the Investment Company Act of 1940;
    
    grant warrants or options to purchase shares of our stock to our Adviser or its affiliates;
    
    engage in trading, as compared with investment activities, or engage in the business of underwriting, or the agency distribution of, securities issued by
other persons;
    
    acquire securities in any company holding investments or engaging in activities prohibited in the foregoing clauses; or
    
    make or invest in mortgage loans that are subordinate to any mortgage or equity interest of any of our affiliates.
 Conflict of Interest Policy
   
    
    acquire from or sell to any of our officers, directors or our
Advisers employees, or any entity in which any of our officers,
directors or employees has an interest of more than 5%, any assets or
other property;
    
    borrow from any of our directors, officers or employees, or any
entity, in which any of our officers, directors or employees has an
interest of more than 5% or;
    
    engage in any other transaction with any of our directors, officers or
employees, or any entity in which any of our directors, officers or
employees has an interest of more than 5% (except that our Adviser may
lease office space in a building that we own, provided that the rental
rate under the lease is determined by our independent directors to be
at a fair market rate).
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Future Revisions in Policies and Strategies
  Our Adviser and Administrator
    Underwriting Criteria, Due Diligence Process and Negotiating Lease Provisions
  Investment Advisory and Administration Agreements
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Investment Advisory Agreement
    Management Services and Fees under the Advisory Agreement
   
    
    no incentive fee in any calendar quarter in which our pre-incentive fee FFO does not
exceed the hurdle rate of 1.75% (7% annualized);
    
    100% of the amount of the pre-incentive fee FFO that exceeds the hurdle rate, but is
less than 2.1875% in any calendar quarter (8.75% annualized); and
    
    20% of the amount of our pre-incentive fee FFO that exceeds 2.1875% in any calendar
quarter (8.75% annualized).
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Quarterly Incentive Fee Based on FFO
 Pre-incentive fee FFO
(expressed as a percentage of total common stockholders equity)
 
 Percentage of pre-incentive fee FFO allocated to incentive fee
  Administration Agreement
  Adviser Duties and Authority under the Advisory Agreement
  
    
    finds, evaluates, and enters into contracts to purchase real estate
and make mortgage loans on our behalf in compliance with our
investment procedures, objectives and policies, subject to approval of
our board of directors, where required;
    
    provides advice to us and acts on our behalf with respect to the
negotiation, acquisition, financing, refinancing, holding, leasing and
disposition of real estate investments;
    
    takes the actions and obtains the services necessary to effect the
negotiation, acquisition, financing, refinancing, holding, leasing and
disposition of real estate investments; and
    
    provides day-to-day management of our business activities and other
administrative services for us as requested by our board of directors.
  
    
    our Adviser has obtained an independent appraisal for the property
indicating that the total cost of the property does not exceed its
appraised value; and
    
    our Adviser has concluded that the property, in conjunction with our
other investments and proposed investments, is reasonably expected to
fulfill our investment objectives and policies as established by our
board of directors then in effect.
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
    
    loans not secured or otherwise supported by real property;
    
    any acquisition or mortgage loan which at the time of investment would have a cost exceeding 20% of our total assets;
    
    transactions that involve conflicts of interest with our Adviser (other than reimbursement of expenses in accordance
with the Advisory Agreement); and
    
    the lease of assets to our Adviser, its affiliates or any of our officers or directors.
  Employees
   Number of Individuals
    
    Functional Area10
    
    Executive Management33
    
    Investment Management, Portfolio Management and Due Diligence8
    
    Administration, Accounting, Compliance, Human Resources, Legal and Treasury
 Competition
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Environmental Matters
  Available Information
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Item 1A. Risk Factors
 An investment in our securities involves a number of significant risks and other factors relating
to our structure and investment objectives. As a result, we cannot assure you that we will achieve
our investment objectives. You should consider carefully the following information before making an
investment in our securities.
 Risk related to the economy
 The current state of the economy and the capital markets increases the possibility of adverse
effects on our financial position, results of operations and the market price of our securities.
   Risks related to our financing
 Our line of credit contains various covenants which, if not complied with, could accelerate our
repayment obligations, thereby materially and adversely affecting our liquidity, financial
condition, results of operations and ability to pay distributions to stockholders.
  Our business strategy relies heavily on external financing, which may expose us to risks associated
with leverage such as restrictions on additional borrowing and payment of distributions to
stockholders, risks associated with balloon payments, and risk of loss of our equity upon
foreclosure.
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A change in the value of our assets could cause us to experience a cash shortfall, be in default of
our loan covenants, lose management control or incur a charge for the impairment of assets.
  Interest rate changes may adversely affect our results of operations.
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Risks related to the real estate industry
 We are subject to certain risks associated with real estate ownership and lending which could
reduce the value of our investments.
  
    
    changes in the general economic climate;
    
    changes in local conditions such as an oversupply of space or reduction in demand for real estate;
    
    changes in interest rates and the availability of financing;
    
    competition from other available space; and
    
    changes in laws and governmental regulations, including those governing real estate usage, zoning
and taxes.
 Risk
related to the economy
 Competition for the acquisition of real estate may impede our ability to make acquisitions or
increase the cost of these acquisitions.
  Our ownership of properties through ground leases exposes us to risks which are different than
those resulting from our ownership of fee title to other properties.
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Risks related to our tenants, borrowers and properties
 Highly leveraged tenants and borrowers may be unable to pay rent or make mortgage payments, which
could adversely affect our cash available to make distributions to our stockholders.
 Risk related to the
economy
   
    
    the loss of lease or mortgage payments to us;
    
    an increase in the costs we incur to carry the property occupied by such tenant;
    
    a reduction in the value of our securities; or
    
    a decrease in distributions to our stockholders.
  Net leases may not result in fair market lease rates over time.
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Many of our tenants are small and medium size businesses, which exposes us to additional risks
unique to these entities.
  
    
    Small and medium-sized businesses may have limited financial resources and may not be able to make their lease
or mortgage payments on a timely basis, or at all.A small
or medium-sized tenant or borrower is more likely to have
difficulty making its lease or mortgage payments when it
experiences adverse events, such as the failure to meet its
business plan, a downturn in its industry or negative
economic conditions. In addition, because of the lack of
available credit in the current marketplace, as discussed
further in Risk related to the economyabove, our tenants
might not be able to obtain the financing necessary to fund
their working capital, which could hinder their ability to
make their lease or mortgage payment on a timely basis, or
at all.
    
    Small and medium-sized businesses typically have narrower
product lines and smaller market shares than large
businesses.Because our target tenants and borrowers are
smaller businesses, they will tend to be more vulnerable to
competitors actions and market conditions, as well as
general economic downturns. In addition, our target tenants
and borrowers may face intense competition, including
competition from companies with greater financial
resources, more extensive development, manufacturing,
marketing and other capabilities and a larger number of
qualified managerial and technical personnel.
    
    There is generally little or no publicly available
information about our target tenants and borrowers.Many of
our tenants and borrowers are likely to be privately owned
businesses, about which there is generally little or no
publicly available operating and financial information. As
a result, we will rely on our Adviser to perform due
diligence investigations of these tenants and borrowers,
their operations and their prospects. We may not learn all
of the material information we need to know regarding these
businesses through our investigations.
    
    Small and medium-sized businesses generally have less
predictable operating results.We expect that many of our
tenants and borrowers may experience significant
fluctuations in their operating results, may from time to
time be parties to litigation, may be engaged in rapidly
changing businesses with products subject to a substantial
risk of obsolescence, may require substantial additional
capital to support their operations, to finance expansion
or to maintain their competitive positions, may otherwise
have a weak financial position or may be adversely affected
by changes in the business cycle. Our tenants and borrowers
may not meet net income, cash flow and other coverage tests
typically imposed by their senior lenders. The failure of a
tenant or borrower to satisfy financial or operating
covenants imposed by senior lenders could lead to defaults
and, potentially, foreclosure on credit facilities, which
could additionally trigger cross-defaults in other
agreements. If this were to occur, it is possible that the
ability of the tenant or borrower to make required payments
to us would be jeopardized.
    
    Small and medium-sized businesses are more likely to be
dependent on one or two persons.Typically, the success of
a small or medium-sized business also depends on the
management talents and efforts of one or two persons or a
small group of persons. The death, disability or
resignation of one or more of these persons could have a
material adverse impact on our tenant or borrower and, in
turn, on us.
    
    Small and medium-sized businesses may have limited
operating histories.While we intend to target as tenants
and borrowers stable companies with proven track records,
we may lease properties or lend money to new companies that
meet our other investment criteria. Tenants or borrowers
with limited operating histories will be exposed to all of
the operating risks that new businesses face and may be
particularly susceptible to, among other risks, market
downturns, competitive pressures and the departure of key
executive officers.
 We may not have funding for future tenant improvements.
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Illiquidity of real estate investments may make it difficult for us to sell properties in response
to market conditions and could harm our financial condition and ability to make distributions.
  Our real estate investments may include special use and single or multi-tenant properties that may
be difficult to sell or re-lease upon tenant defaults or early lease terminations.
   Our real estate investments have a limited number of tenants and are concentrated in a limited
number of industries, which subjects us to an increased risk of significant loss if any one of
these tenants is unable to pay or if particular industries experience downturns.
  The inability of a tenant in a single tenant property to pay rent will reduce our revenues and
increase our carrying costs of the building.
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We may be unable to renew leases, lease vacant space or re-lease space as leases expire, which
could adversely affect our business and our ability to make distributions to our stockholders.
  Liability for uninsured losses could adversely affect our financial condition.
  We could incur significant costs related to government regulation and private litigation over
environmental matters.
   We could be exposed to liability and remedial costs related to environmental matters.
  25




---



##### Table of Contents



If a sale-leaseback transaction is re-characterized in a tenants bankruptcy proceeding, our
financial condition could be adversely affected.
  26




---



##### Table of Contents



Risks related to our Adviser
 We are dependent upon our key management personnel, who are employed by our Adviser, for our future
success, particularly David Gladstone, Terry Lee Brubaker and George Stelljes III.
  Our success depends on the performance of our Adviser and if our Adviser makes inadvisable
investment or management decisions, our operations could be materially adversely impacted.
  We may have conflicts of interest with our Adviser and other affiliates.
   
    
    our Adviser may realize substantial compensation on account of its
activities on our behalf, and may,
 therefore, be motivated to approve acquisitions solely on the basis of
increasing compensation to itself;
    
    we may experience competition with our affiliates for financing transactions;
 
    
    our Adviser may earn fee income from our borrowers or tenants; and
 27




---



##### Table of Contents




    
    our Adviser and other affiliates such as Gladstone Capital,
Gladstone Investment and Gladstone Land could compete for the
time and services of our officers and directors.
  Our Adviser is not obligated to provide a waiver of the incentive fee, which could negatively
impact our earnings and our ability to maintain our current level of, or increase, distributions to
our stockholders.
  We may be obligated to pay our Adviser incentive compensation even if we incur a loss.
  Risks Related to Qualification and Operation as a REIT
 If we fail to qualify as a REIT, our operations and dividends to stockholders would be adversely
impacted.
   
    
    we would not be allowed to deduct our distributions to stockholders when
computing our taxable income;
    
    we would be subject to federal income tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates;
    
    we would be disqualified from being taxes as a REIT for the four taxable years
following the year during which qualification was lost unless entitled to relief under
certain statutory provisions;
    
    our cash available for dividends to stockholders would be reduced; and
 28




---



##### Table of Contents




    
    we may be required to borrow additional funds or sell some of our assets in
order to pay corporate tax obligations that we may incur as a result of our
disqualification.
 We may need to incur additional borrowings to meet the REIT minimum distribution requirement and to
avoid excise tax.
  Complying with REIT requirements may cause us to forgo otherwise attractive opportunities or
liquidate otherwise attractive investments.
     We may be subject to adverse legislative or regulatory tax changes that could reduce the market
price of our securities.
 29




---



##### Table of Contents



Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
  Complying with REIT requirements may limit our ability to hedge effectively and may cause us to
incur tax liabilities.
  To the extent that our distributions represent a return of capital for tax purposes, you could
recognize an increased capital gain upon a subsequent sale of your stock.
  Other risks
 If we invest in mortgage loans, such investments may be affected by unfavorable real estate market
conditions, including interest rate fluctuations, which could decrease the value of those loans and
our results of operations.
  30




---



##### Table of Contents



Recent accounting pronouncements may impact our results of operations.
  We are subject to restrictions that may discourage a change of control. Certain provisions
contained in our articles of incorporation and Maryland law may prohibit or restrict a change of
control.
 
    
    Our articles of incorporation prohibit ownership of more than 9.8% of the outstanding
shares of our capital stock by one person. This restriction may discourage a change of
control and may deter individuals or entities from making tender offers for our capital
stock, which offers might otherwise be financially attractive to our stockholders or
which might cause a change in our management.
    
    Our board of directors is divided into three classes, with the term of the directors in
each class expiring every third year. At each annual meeting of stockholders, the
successors to the class of directors whose term expires at such meeting will be elected
to hold office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election. After election, a director may only be
removed by our stockholders for cause. Election of directors for staggered terms with
limited rights to remove directors makes it more difficult for a hostile bidder to
acquire control of us. The existence of this provision may negatively impact the price
of our securities and may discourage third-party bids to acquire our securities. This
provision may reduce any premiums paid to stockholders in a change in control
transaction.
    
    Certain provisions of Maryland law applicable to us prohibit business combinations with:
 
    
    any person who beneficially owns 10% or more of the voting
power of our common stock, referred to as an interested
stockholder;
    
    an affiliate of ours who, at any time within the two-year
period prior to the date in question, was an interested
stockholder; or
    
    an affiliate of an interested stockholder.
  31




---



##### Table of Contents



Market conditions could adversely affect the market price and trading volume of our securities.
  
    
    price and volume fluctuations in the stock market from time to time, which are often unrelated to
the operating performance of particular companies;
    
    significant volatility in the market price and trading volume of shares of REITs, real estate
companies or other companies in our sector, which is not necessarily related to the performance of
those companies;
    
    price and volume fluctuations in the stock market as a result of terrorist attacks, or speculation
regarding future terrorist attacks, in the United States or abroad;
    
    actual or anticipated variations in our quarterly operating results or distributions to stockholders;
    
    changes in our funds from operations or earnings estimates or the publication of research reports
about us or the real estate industry generally;
    
    actions by institutional stockholders;
    
    speculation in the press or investment community;
    
    changes in regulatory policies or tax guidelines, particularly with respect to REITs; and
    
    investor confidence in the stock market.
 Shares of common stock eligible for future sale may have adverse effects on our share price.
  Legislative or regulatory action could adversely affect investors.
  Compliance or failure to comply with laws requiring access to our properties by disabled persons
could result in substantial cost.
  32




---



##### Table of Contents



Our Board of Directors may change our investment policy without stockholders approval.
  If our Operating Partnership fails to maintain its status as a disregarded entity or partnership
for federal income tax purposes, its income may be subject to taxation.
  Joint venture investments could be adversely affected by our lack of sole decision making
authority, our reliance on co-venturers financial condition and disputes between our co-venturers
and us.
  Our rights and the rights of our stockholders to take action against our directors and officers are
limited.
  33




---



##### Table of Contents



Any weaknesses identified in our system of internal controls by us and our independent registered
public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could have an
adverse effect on our business.
  
 Item 1B. Unresolved Staff Comments
  34




---



##### Table of Contents



Item 2. Properties
  35




---



##### Table of Contents



Total RentalTotal Rental Income for
    
    
    Income per
    
    
    Year ofYear Built/
    
    
    
    
    
    
    Rentable
    
    
    
    
    
    
    the Year Ended
    
    
    Occupied Square
    
    
    LeaseProperty
    
    Improvements
    
    
    Date of Purchase
    
    
    Square Feet
    
    
    Occupancy
    
    
    December 31, 2010 (4)
    
    
    Foot
    
    
    Expiration208 South Rogers Lane
(Raleigh NC)
    
    
    1997
    
    
    
    12/23/2003
    
    
    
    58,926
    
    
    
    100
    %
    
    $
    624,118
    
    
    $
    10.59
    
    
    
    20153874 Highland Park NW
(Canton, OH)
    
    
    1994
    
    
    
    1/30/2004
    
    
    
    54,018
    
    
    
    100
    %
    
    $
    337,625
    
    
    $
    6.25
    
    
    
    2014260 Springside Drive
(Akron, OH)
    
    
    1968/1999
    
    
    
    4/29/2004
    
    
    
    83,891
    
    
    
    100
    %
    
    $
    1,026,692
    
    
    $
    12.24
    
    
    
    2015
    (1)5815 Westpark Drive
(Charlotte, NC)
    
    
    1984/1995
    
    
    
    6/30/2004
    
    
    
    64,500
    
    
    
    100
    %
    
    $
    1,006,553
    
    
    $
    15.61
    
    
    
    2019171 Great Oak Drive
(Canton, NC)
    
    
    1998
    
    
    
    7/6/2004
    
    
    
    228,000
    
    
    
    100
    %
    
    $
    600,145
    
    
    $
    2.63
    
    
    
    2024Rt. 219, Tax Parcel No. 33-251-0246,
(Snyder Township, PA)
    
    
    1991
    
    
    
    8/5/2004
    
    
    
    290,000
    
    
    
    100
    %
    
    $
    930,522
    
    
    $
    3.21
    
    
    
    20149698 Old US Hwy. 52
(Lexington, NC)
    
    
    1986
    
    
    
    8/5/2004
    
    
    
    154,000
    
    
    
    100
    %
    
    $
    424,964
    
    
    $
    2.76
    
    
    
    20149100 Highway 290 East
(Austin, TX)
    
    
    2001
    
    
    
    9/16/2004
    
    
    
    51,933
    
    
    
    100
    %
    
    $
    751,333
    
    
    $
    14.47
    
    
    
    201513 Industrial Park Drive
(Mt. Pocono, PA)
    
    
    1995-1999
    
    
    
    10/15/2004
    
    
    
    223,275
    
    
    
    100
    %
    
    $
    637,025
    
    
    $
    2.85
    
    
    
    20216550 First Park Ten Boulevard
(San Antonio, TX)
    
    
    1999
    
    
    
    2/10/2005
    
    
    
    60,245
    
    
    
    100
    %
    
    $
    769,793
    
    
    $
    12.78
    
    
    
    20144630 Journal Street
(Columbus, OH)
    
    
    1995
    
    
    
    2/10/2005
    
    
    
    39,000
    
    
    
    100
    %
    
    $
    308,105
    
    
    $
    7.90
    
    
    
    2015199 Sing Sing Road
(Big Flats, NY)
    
    
    2001
    
    
    
    4/15/2005
    
    
    
    120,000
    
    
    
    100
    %
    
    $
    644,252
    
    
    $
    5.37
    
    
    
    20132525 North Woodlawn Avenue
(Wichita, KS)
    
    
    2000
    
    
    
    5/18/2005
    
    
    
    69,287
    
    
    
    100
    %
    
    $
    1,109,217
    
    
    $
    16.01
    
    
    
    2012725 & 737 Great Southwest Pkwy
(Arlington, TX)
    
    
    1966
    
    
    
    5/26/2005
    
    
    
    64,000
    
    
    
    100
    %
    
    $
    580,635
    
    
    $
    9.07
    
    
    
    20134032 Linden Avenue
(Dayton, OH)
    
    
    1956
    
    
    
    6/30/2005
    
    
    
    59,894
    
    
    
    100
    %
    
    $
    268,042
    
    
    $
    4.48
    
    
    
    201881 Corbett Way
(Eatontown, NJ)
    
    
    1991
    
    
    
    7/7/2005
    
    
    
    30,268
    
    
    
    100
    %
    
    $
    537,321
    
    
    $
    17.75
    
    
    
    202417 & 20 Veronica Avenue
(Franklin Township, NJ)
    
    
    1978
    
    
    
    7/11/2005
    
    
    
    183,000
    
    
    
    100
    %
    
    $
    975,229
    
    
    $
    5.33
    
    
    
    2020150 Ridgeview Center Drive
(Duncan, SC)
    
    
    1984/2001/2007
    
    
    
    7/14/2005
    
    
    
    222,670
    
    
    
    100
    %
    
    $
    1,539,286
    
    
    $
    6.91
    
    
    
    2020170 Ridgeview Center Drive
(Duncan, SC)
    
    
    1984/2001/2007
    
    
    
    7/14/2005
    
    
    
    55,350
    
    
    
    100
    %
    
    $
    382,627
    
    
    $
    6.91
    
    
    
    20205656 Campus Parkway
(Hazelwood, MO)
    
    
    1977
    
    
    
    8/5/2005
    
    
    
    51,155
    
    
    
    100
    %
    
    $
    289,928
    
    
    $
    5.67
    
    
    
    2012914 Wohlert Street
(Angola, IN)
    
    
    1982
    
    
    
    9/2/2005
    
    
    
    52,080
    
    
    
    100
    %
    
    $
    125,202
    
    
    $
    2.40
    
    
    
    2020800 Growth Parkway
(Angola, IN)
    
    
    1998
    
    
    
    9/2/2005
    
    
    
    50,000
    
    
    
    100
    %
    
    $
    125,202
    
    
    $
    2.50
    
    
    
    2020802 East 11th Street
(Rock Falls, IL)
    
    
    1988
    
    
    
    9/2/2005
    
    
    
    52,000
    
    
    
    100
    %
    
    $
    125,202
    
    
    $
    2.41
    
    
    
    20202 Opportunity Way
(Newburyport, MA)
    
    
    1994
    
    
    
    10/17/2005
    
    
    
    86,308
    
    
    
    100
    %
    
    $
    891,492
    
    
    $
    10.33
    
    
    
    2015255 Spring Street
(Clintonville, WI)
    
    
    1992
    
    
    
    10/31/2005
    
    
    
    291,142
    
    
    
    100
    %
    
    $
    575,006
    
    
    $
    1.98
    
    
    
    20205700 Lee Road
(Maple Heights, OH)
    
    
    1974
    
    
    
    12/21/2005
    
    
    
    347,218
    
    
    
    100
    %
    
    $
    1,282,582
    
    
    $
    3.69
    
    
    
    20157545 Midlothian Turnpike
(Richmond, VA)
    
    
    1972
    
    
    
    12/30/2005
    
    
    
    42,213
    
    
    
    0
    %
    
    $
    421,672
    
    
    $
    9.99
    
    
    
    20103930 Sunforest Court
(Toledo, OH)
    
    
    1979
    
    
    
    12/30/2005
    
    
    
    23,368
    
    
    
    100
    %
    
    $
    327,152
    
    
    $
    14.00
    
    
    
    2020
 36




---



##### Table of Contents



Total RentalTotal Rental Income for
    
    
    Income per
    
    
    Year ofYear Built/
    
    
    
    
    
    
    Rentable
    
    
    
    
    
    
    the Year Ended
    
    
    Occupied Square
    
    
    LeaseProperty
    
    Improvements
    
    
    Date of Purchase
    
    
    Square Feet
    
    
    Occupancy
    
    
    December 31, 2010 (4)
    
    
    Foot
    
    
    Expiration75 Canal Street
(South Hadley, MA)
    
    
    1978
    
    
    
    2/15/2006
    
    
    
    150,000
    
    
    
    0
    %
    
    $
    179,837
    
    
    $
    1.20
    
    
    
    20102101 Fox Drive
(Champaign, IL)
    
    
    1996
    
    
    
    2/21/2006
    
    
    
    20,400
    
    
    
    100
    %
    
    $
    295,220
    
    
    $
    14.47
    
    
    
    20132109 Fox Drive
(Champaign, IL)
    
    
    1996
    
    
    
    2/21/2006
    
    
    
    40,000
    
    
    
    100
    %
    
    $
    578,863
    
    
    $
    14.47
    
    
    
    20132215 Fox Drive
(Champaign, IL)
    
    
    1996
    
    
    
    2/21/2006
    
    
    
    25,000
    
    
    
    100
    %
    
    $
    361,790
    
    
    $
    14.47
    
    
    
    20132301 Fox Drive
(Champaign, IL)
    
    
    1996
    
    
    
    2/21/2006
    
    
    
    22,862
    
    
    
    100
    %
    
    $
    330,849
    
    
    $
    14.47
    
    
    
    20132470 Highcrest Road
(Roseville, MN)
    
    
    1964
    
    
    
    2/21/2006
    
    
    
    359,540
    
    
    
    100
    %
    
    $
    3,030,458
    
    
    $
    8.43
    
    
    
    201212000 Portland Avenue South
(Burnsville, MN)
    
    
    1984
    
    
    
    5/10/2006
    
    
    
    114,100
    
    
    
    100
    %
    
    $
    1,234,662
    
    
    $
    10.82
    
    
    
    201514701 Anthony Avenue
(Menomonee Falls, WI)
    
    
    1986/2000
    
    
    
    6/30/2006
    
    
    
    125,692
    
    
    
    100
    %
    
    $
    775,274
    
    
    $
    6.17
    
    
    
    20161025 Birdsong Drive
(Baytown, TX)
    
    
    1997
    
    
    
    7/11/2006
    
    
    
    12,000
    
    
    
    100
    %
    
    $
    254,121
    
    
    $
    21.18
    
    
    
    201342400 Merrill Road
(Sterling Heights, MI)
    
    
    1979/1989
    
    
    
    9/22/2006
    
    
    
    532,869
    
    
    
    100
    %
    
    $
    1,166,654
    
    
    $
    2.19
    
    
    
    20162150, 2200 Pinson Valley Parkway
(Birmingham, AL)
    
    
    1961/1980
    
    
    
    9/29/2006
    
    
    
    63,514
    
    
    
    100
    %
    
    $
    271,173
    
    
    $
    4.27
    
    
    
    20162325 West Fairview Avenue
(Montgomery, AL)
    
    
    1962/1989
    
    
    
    9/29/2006
    
    
    
    29,472
    
    
    
    100
    %
    
    $
    125,830
    
    
    $
    4.27
    
    
    
    20165221 N Highway 763
(Columbia, MO)
    
    
    1978
    
    
    
    9/29/2006
    
    
    
    16,275
    
    
    
    100
    %
    
    $
    69,486
    
    
    $
    4.27
    
    
    
    20164690 Parkway Drive
(Mason, OH)
    
    
    2002
    
    
    
    1/5/2007
    
    
    
    60,000
    
    
    
    100
    %
    
    $
    681,270
    
    
    $
    11.35
    
    
    
    2013201 South Rogers Lane
(Raleigh, NC)
    
    
    1994
    
    
    
    2/16/2007
    
    
    
    115,500
    
    
    
    100
    %
    
    $
    717,203
    
    
    $
    6.21
    
    
    
    20151110 West Tenkiller
(Tulsa, OK)
    
    
    2004
    
    
    
    3/1/2007
    
    
    
    238,310
    
    
    
    100
    %
    
    $
    1,565,794
    
    
    $
    6.57
    
    
    
    2019
    (3)3725 East 10th Court
(Hialeah, FL)
    
    
    1956/1992
    
    
    
    3/9/2007
    
    
    
    132,337
    
    
    
    100
    %
    
    $
    995,048
    
    
    $
    7.52
    
    
    
    2022554 Clark Road
(Tewksbury, MA)
    
    
    1985/1989
    
    
    
    5/17/2007
    
    
    
    102,200
    
    
    
    100
    %
    
    $
    922,926
    
    
    $
    9.03
    
    
    
    20175324 Natorp Boulevard
(Mason, OH)
    
    
    2007
    
    
    
    7/1/2007
    
    
    
    21,264
    
    
    
    100
    %
    
    $
    583,131
    
    
    $
    27.42
    
    
    
    20277282 Willam Barry Boulevard
(Cicero, NY)
    
    
    2005
    
    
    
    9/6/2007
    
    
    
    71,880
    
    
    
    100
    %
    
    $
    529,743
    
    
    $
    7.37
    
    
    
    20201515 Arboretum Drive SE
(Grand Rapids, MI)
    
    
    2001
    
    
    
    9/28/2007
    
    
    
    63,235
    
    
    
    100
    %
    
    $
    1,068,550
    
    
    $
    16.90
    
    
    
    20254 Territorial Court
(Bollingbrook, IL)
    
    
    2002
    
    
    
    9/28/2007
    
    
    
    55,869
    
    
    
    100
    %
    
    $
    619,296
    
    
    $
    11.08
    
    
    
    20142349 Lawrenceville Highway
(Decatur, GA)
    
    
    1989
    
    
    
    12/13/2007
    
    
    
    16,740
    
    
    
    100
    %
    
    $
    404,159
    
    
    $
    24.14
    
    
    
    20262341 Lawrenceville Highway
(Decatur, GA)
    
    
    1989
    
    
    
    12/13/2007
    
    
    
    4,372
    
    
    
    100
    %
    
    $
    105,555
    
    
    $
    24.14
    
    
    
    20262339 Lawrenceville Highway
(Decatur, GA)
    
    
    1989
    
    
    
    12/13/2007
    
    
    
    5,488
    
    
    
    100
    %
    
    $
    132,498
    
    
    $
    24.14
    
    
    
    2026311 Phillip Boulevard
(Lawrenceville, GA)
    
    
    2005
    
    
    
    12/13/2007
    
    
    
    12,412
    
    
    
    100
    %
    
    $
    349,871
    
    
    $
    28.19
    
    
    
    20262096 McGee Road
(Snellville, GA)
    
    
    1986
    
    
    
    12/13/2007
    
    
    
    3,800
    
    
    
    100
    %
    
    $
    90,815
    
    
    $
    23.90
    
    
    
    2026
 37




---



##### Table of Contents



Total RentalTotal Rental Income for
    
    Income per
    
    Year ofYear Built/
    
    
    
    Rentable
    
    
    
    
    
    the Year Ended
    
    Occupied Square
    
    LeaseProperty
    
    Improvements
    
    Date of Purchase
    
    Square Feet
    
    Occupancy
    
    December 31, 2010 (4)
    
    Foot
    
    Expiration7174 Wheat Street
(Covington, GA)
    
    
    2000
    
    
    12/13/2007
    
    
    5,000
    
    
    
    100
    %
    
    $
    119,493
    
    
    $
    23.90
    
    
    
    20261055 Haw Creek Parkway
(Cumming, GA)
    
    
    2004
    
    
    12/13/2007
    
    
    13,919
    
    
    
    100
    %
    
    $
    380,410
    
    
    $
    27.33
    
    
    
    20261293 Wellbrook Circle
(Conyers, GA)
    
    
    1994
    
    
    12/13/2007
    
    
    6,400
    
    
    
    100
    %
    
    $
    152,951
    
    
    $
    23.90
    
    
    
    2026425 Gateway Drive
(Reading, PA)
    
    
    2007
    
    
    1/29/2008
    
    
    42,900
    
    
    
    100
    %
    
    $
    716,666
    
    
    $
    16.71
    
    
    
    20286499 University Avenue NE
(Fridley, MN)
    
    
    1985/2006
    
    
    2/26/2008
    
    
    74,160
    
    
    
    100
    %
    
    $
    890,432
    
    
    $
    12.01
    
    
    2013(3)7528 Auburn Road
(Concord Township, OH)
    
    
    1957/2008
    
    
    3/31/2008
    
    
    273,300
    
    
    
    100
    %
    
    $
    1,724,133
    
    
    $
    6.31
    
    
    
    202810021 Rodney Street
(Pineville, NC)
    
    
    1985
    
    
    4/30/2008
    
    
    74,950
    
    
    
    100
    %
    
    $
    431,424
    
    
    $
    5.76
    
    
    
    202828305 State Route 7
(Marietta, OH)
    
    
    1992/2007
    
    
    8/29/2008
    
    
    223,458
    
    
    
    100
    %
    
    $
    896,743
    
    
    $
    4.01
    
    
    
    2028400 Highpoint Drive
(Chalfont, PA)
    
    
    1987
    
    
    8/29/2008
    
    
    67,200
    
    
    
    100
    %
    
    $
    757,571
    
    
    $
    11.27
    
    
    
    20161520 Albany Place SE
(Orange City, Iowa)
    
    
    1990
    
    
    12/15/2010
    
    
    487,121
    
    
    
    100
    %
    
    $
    53,215
    
    
    $
    2.37
    (2)
    
    
    2026Totals
    
    
    
    
    
    
    
    
    6,791,280
    
    
    
    
    
    
    $
    41,180,036
 
 (1)
    
    Two tenants occupy this building, each with separate leases ending in the
same year.(2)
    
    Rental income per occupied square foot
is annualized, as if the building were held for all
of 2010.(3)
    
    Property subject to a ground lease.(4)
    
    Total rental income included in this table is straight-line rental income calculated
in accordance with US GAAP.  Rental Revenue forYear of Lease
    
    
    
    
    
    Number of
    
    the Year Ended
    
    % of AnnualizedExpiration
    
    Square Feet
    
    Leases (1)
    
    December 31, 2010
    
    Base Rent2010
    
    
    192,213
    
    
    
    2
    
    
    $
    601,509
    
    
    
    1.5
    %2011
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0.0
    %2012
    
    
    479,982
    
    
    
    3
    
    
    
    4,429,603
    
    
    
    10.8
    %2013
    
    
    438,422
    
    
    
    6
    
    
    
    4,617,432
    
    
    
    11.2
    %2014
    
    
    614,132
    
    
    
    5
    
    
    
    3,082,200
    
    
    
    7.5
    %2015
    
    
    896,876
    
    
    
    8
    
    
    
    6,836,187
    
    
    
    16.6
    %2016
    
    
    835,022
    
    
    
    4
    
    
    
    3,165,988
    
    
    
    7.7
    %2017
    
    
    102,200
    
    
    
    1
    
    
    
    922,926
    
    
    
    2.2
    %2018
    
    
    59,894
    
    
    
    1
    
    
    
    268,042
    
    
    
    0.7
    %2019+
    
    
    3,172,539
    
    
    
    22
    
    
    
    17,256,149
    
    
    
    41.8
    %Total
    
    
    6,791,280
    
    
    
    52
    
    
    $
    41,180,036
    
    
    
    100
    %
 
 (1)
    
    Two leases expired during the third quarter of 2010, and neither of these properties have yet to be re-leased.  38




---



##### Table of Contents



Rental Revenue forNumber of
    
    
    the Year Ended
    
    
    % of AnnualizedState
    
    Square Feet
    
    
    Leases(1)
    
    
    December 31, 2010
    
    
    Base RentOhio
    
    
    1,185,411
    
    
    
    11
    
    
    
    7,435,475
    
    
    
    18.1
    %Minnesota
    
    
    547,800
    
    
    
    3
    
    
    
    5,155,552
    
    
    
    12.5
    %North Carolina
    
    
    695,876
    
    
    
    6
    
    
    
    3,804,407
    
    
    
    9.2
    %Pennsylvania
    
    
    623,375
    
    
    
    4
    
    
    
    3,041,784
    
    
    
    7.4
    %Texas
    
    
    188,178
    
    
    
    4
    
    
    
    2,355,882
    
    
    
    5.7
    %Michigan
    
    
    596,104
    
    
    
    2
    
    
    
    2,235,204
    
    
    
    5.4
    %Illinois
    
    
    164,131
    
    
    
    2
    
    
    
    2,186,018
    
    
    
    5.3
    %Massachusetts
    
    
    338,508
    
    
    
    3
    
    
    
    1,994,255
    
    
    
    4.8
    %All Other States
    
    
    2,451,897
    
    
    
    17
    
    
    
    12,971,459
    
    
    
    31.6
    %Total
    
    
    6,791,280
    
    
    
    52
    
    
    $
    41,180,036
    
    
    
    100
    %
 
 (1)
    
    Two leases expired during the third quarter of 2010, and neither of these properties have yet to be re-leased. 
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    Removed and Reserved
 39




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##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  Market price per shareDistributionsQuarter Ended
    
    High
    
    Low
    
    Declared Per Share3/31/2009
    
    $
    10.20
    
    
    $
    5.36
    
    
    $
    0.3756/30/2009
    
    
    16.21
    
    
    
    8.20
    
    
    
    0.3759/30/2009
    
    
    14.50
    
    
    
    11.26
    
    
    
    0.37512/31/2009
    
    
    14.19
    
    
    
    11.85
    
    
    
    0.3753/31/2010
    
    
    14.87
    
    
    
    13.05
    
    
    
    0.3756/30/2010
    
    
    17.79
    
    
    
    14.36
    
    
    
    0.3759/30/2010
    
    
    17.30
    
    
    
    15.61
    
    
    
    0.37512/31/2010
    
    
    19.50
    
    
    
    17.00
    
    
    
    0.375
   
    
    the sum of (A) 90% of our REIT taxable income (computed without regard to the
dividends paid deduction and capital gain) and (B) 90% of the net income (after tax), if
any, from foreclosure property, less
 
    
    the sum of certain non-cash items.
  40




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##### Table of Contents



41




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##### Table of Contents



Item 6.
    
    Selected Financial Data
  For the year ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Operating Data:Total operating revenue
    
    $
    41,928,070
    
    
    $
    42,608,937
    
    
    $
    40,807,497
    
    
    $
    32,690,038
    
    
    $
    25,842,045Total operating expenses
    
    
    (23,414,572
    )
    
    
    (20,540,529
    )
    
    
    (19,363,723
    )
    
    
    (15,791,430
    )
    
    
    (14,035,669
    )Other expense
    
    
    (13,585,590
    )
    
    
    (17,668,460
    )
    
    
    (16,570,753
    )
    
    
    (10,940,394
    )
    
    
    (8,521,419
    )Income from continuing operations
    
    
    4,927,908
    
    
    
    4,399,948
    
    
    
    4,873,021
    
    
    
    5,958,214
    
    
    
    3,284,957Discontinued operations
    
    
    
    
    
    
    203,100
    
    
    
    39,926
    
    
    
    182,015
    
    
    
    1,087,871Net income
    
    $
    4,927,908
    
    
    $
    4,603,048
    
    
    $
    4,912,947
    
    
    $
    6,140,229
    
    
    $
    4,372,828Dividends attributable to preferred stock
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (2,186,890
    )Dividends attributable to senior common stock
    
    
    (20,050
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income available to common stockholders
    
    $
    814,108
    
    
    $
    509,298
    
    
    $
    819,197
    
    
    $
    2,046,479
    
    
    $
    2,185,938Share and Per Share Data:Earnings per weighted average common share  basicIncome from continuing operations (net of dividends attributable to preferred
stock)
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.22
    
    
    $
    0.14Discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    0.01
    
    
    
    0.02
    
    
    
    0.14Net income available to common stockholders
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.28Earnings per weighted average common share  dilutedIncome from continuing operations (net of dividends attributable to preferred
stock)
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.22
    
    
    $
    0.14Discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    0.01
    
    
    
    0.01
    
    
    
    0.13Net income available to common stockholders
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.23
    
    
    $
    0.27Weighted average shares outstanding-basic
    
    
    8,576,303
    
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
    
    
    
    7,827,781Weighted average shares outstanding-diluted
    
    
    8,601,153
    
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
    
    
    
    7,986,690Cash dividends declared per common share
    
    $
    1.50
    
    
    $
    1.50
    
    
    $
    1.50
    
    
    $
    1.44
    
    
    $
    1.44Supplemental Data:Net income available to common stockholders
    
    $
    814,108
    
    
    $
    509,298
    
    
    $
    819,197
    
    
    $
    2,046,479
    
    
    $
    2,185,938Real estate depreciation and amortization, including discontinued operations
    
    
    13,263,814
    
    
    
    13,171,703
    
    
    
    12,704,641
    
    
    
    10,528,458
    
    
    
    8,349,474Less: Gain on sale of real estate, net of taxes paid
    
    
    
    
    
    
    (160,038
    )
    
    
    
    
    
    
    (78,667
    )
    
    
    (1,106,590
    )Funds from operations available to common stockholders (1)
    
    
    14,077,922
    
    
    
    13,520,963
    
    
    
    13,523,838
    
    
    
    12,496,270
    
    
    
    9,428,822Ratio of earnings to combined fixed charges and preferred dividends (2)
    
    
    1.0x
    
    
    
    1.0x
    
    
    
    1.1x
    
    
    
    1.1x
    
    
    
    1.1xBalance Sheet Data:Real estate, before accumulated depreciation
    
    $
    401,016,940
    
    
    $
    390,753,892
    
    
    $
    390,562,138
    
    
    $
    340,500,406
    
    
    $
    243,713,542Total assets
    
    $
    410,608,602
    
    
    $
    416,865,373
    
    
    $
    429,098,785
    
    
    $
    378,902,689
    
    
    $
    315,766,022Mortgage notes payable, term loan and borrowings under the line of credit
    
    $
    287,869,463
    
    
    $
    285,961,651
    
    
    $
    286,611,173
    
    
    $
    226,520,471
    
    
    $
    154,494,438Total stockholders equity
    
    $
    111,374,307
    
    
    $
    118,450,542
    
    
    $
    130,495,260
    
    
    $
    142,368,068
    
    
    $
    152,224,176Total common shares outstanding
    
    
    8,724,613
    
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
    
    
    
    8,565,264
 
 
   42




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##### Table of Contents



For the year ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Net income
    
    $
    4,927,908
    
    
    $
    4,603,048
    
    
    $
    4,912,947
    
    
    $
    6,140,229
    
    
    $
    4,372,828Less: Distributions attributable to preferred and senior common stock
    
    
    (4,113,800
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (2,186,890
    )Net income available to common stockholders
    
    
    814,108
    
    
    
    509,298
    
    
    
    819,197
    
    
    
    2,046,479
    
    
    
    2,185,938Add: Real estate depreciation and amortization, includingdiscontinued operations
    
    
    13,263,814
    
    
    
    13,171,703
    
    
    
    12,704,641
    
    
    
    10,528,458
    
    
    
    8,349,474Less: Gain on sale of real estate
    
    
    
    
    
    
    (160,038
    )
    
    
    
    
    
    
    (78,667
    )
    
    
    (1,106,590
    )FFO available to common stockholders
    
    $
    14,077,922
    
    
    $
    13,520,963
    
    
    $
    13,523,838
    
    
    $
    12,496,270
    
    
    $
    9,428,822Weighted average shares outstanding  basic
    
    
    8,576,303
    
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
    
    
    
    7,827,781Weighted average shares outstanding  diluted
    
    
    8,601,153
    
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
    
    
    
    7,986,690Basic net income per weighted average share of common stock
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.28Diluted net income per weighted average share of common stock
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.27Basic FFO per weighted average share of common stock
    
    $
    1.64
    
    
    $
    1.58
    
    
    $
    1.58
    
    
    $
    1.46
    
    
    $
    1.20Diluted FFO per weighted average share of common stock
    
    $
    1.64
    
    
    $
    1.58
    
    
    $
    1.58
    
    
    $
    1.46
    
    
    $
    1.18Distributions declared per share of common stock
    
    $
    1.50
    
    
    $
    1.50
    
    
    $
    1.50
    
    
    $
    1.44
    
    
    $
    1.44Percentage of FFO paid per share of common stock
    
    
    91
    %
    
    
    95
    %
    
    
    95
    %
    
    
    99
    %
    
    
    120
    %
 
 (2)
    
    The calculation of the ratio of earnings to combined fixed charges and preferred
distributions is below. Earnings consist of net income from continuing operations before fixed
charges. Fixed charges consist of interest expense, amortization of deferred financing fees and
the portion of operating lease expense that represents interest. The portion of operating lease
expense that represents interest is calculated by dividing the amount of rent expense, allocated to
us by our Adviser as part of the administration fee payable under the Advisory Agreement, by three. For the year ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Net income from continuing operations
    
    $
    4,927,908
    
    
    $
    4,399,948
    
    
    $
    4,873,021
    
    
    $
    5,958,214
    
    
    $
    3,284,957Add: fixed charges
    
    
    21,191,303
    
    
    
    22,000,728
    
    
    
    20,963,484
    
    
    
    15,670,067
    
    
    
    11,490,476Less: preferred and senior common distributions
    
    
    (4,113,800
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (2,186,890
    )Earnings
    
    $
    22,005,411
    
    
    $
    22,306,926
    
    
    $
    21,742,755
    
    
    $
    17,534,531
    
    
    $
    12,588,543Fixed Charges:Interest expense
    
    
    16,031,755
    
    
    
    16,398,938
    
    
    
    15,574,735
    
    
    
    10,847,346
    
    
    
    8,041,412Amortization of deferred financing fees
    
    
    1,030,982
    
    
    
    1,495,598
    
    
    
    1,283,952
    
    
    
    717,195
    
    
    
    1,207,198Estimated interest component of rent
    
    
    14,766
    
    
    
    12,442
    
    
    
    11,047
    
    
    
    11,776
    
    
    
    54,976Preferred and senior common distributions
    
    
    4,113,800
    
    
    
    4,093,750
    
    
    
    4,093,750
    
    
    
    4,093,750
    
    
    
    2,186,890Total fixed charges and preferred distributions
    
    
    21,191,303
    
    
    
    22,000,728
    
    
    
    20,963,484
    
    
    
    15,670,067
    
    
    
    11,490,476Ratio of earnings to combined fixed charges and preferred distributions
    
    
    1.0
    
    
    
    1.0
    
    
    
    1.0
    
    
    
    1.1
    
    
    
    1.1
 43




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following analysis of our financial condition and results of operations should be read in
conjunction with our financial statements and the notes thereto contained elsewhere in this Form
10-K.
 OVERVIEW
 General
  Business Environment
    44




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##### Table of Contents



Recent Developments
 Investment Activities:
   Financing Activities:
   Debt Activities:
  45




---



##### Table of Contents



Equity Activities:
    Leasing Activities:
    46




---



##### Table of Contents



Diversity of Our Portfolio
  47




---



##### Table of Contents



December 31, 2010
    
    
    December 31, 2009Percentage of
    
    
    
    
    
    
    Percentage ofIndustry Classification
    
    Rental Income
    
    
    Rental Income
    
    
    Rental Income
    
    
    Rental IncomeElectronics
    
    $
    6,165,788
    
    
    
    15.0
    %
    
    $
    6,164,789
    
    
    
    14.9
    %Healthcare, Education & Childcare
    
    
    6,145,415
    
    
    
    14.9
    %
    
    
    6,145,415
    
    
    
    14.8
    %Telecommunications
    
    
    5,447,365
    
    
    
    13.3
    %
    
    
    5,447,033
    
    
    
    13.1
    %Diversified/Conglomerate Manufacturing
    
    
    3,664,686
    
    
    
    8.9
    %
    
    
    3,664,686
    
    
    
    8.8
    %Chemicals, Plastics & Rubber
    
    
    3,130,133
    
    
    
    7.6
    %
    
    
    3,173,514
    
    
    
    7.6
    %Machinery
    
    
    2,332,672
    
    
    
    5.7
    %
    
    
    2,389,607
    
    
    
    5.8
    %Containers, Packaging & Glass
    
    
    2,330,715
    
    
    
    5.7
    %
    
    
    2,330,246
    
    
    
    5.6
    %Beverage, Food & Tobacco
    
    
    2,188,793
    
    
    
    5.2
    %
    
    
    2,188,755
    
    
    
    5.3
    %Printing & Publishing
    
    
    2,187,504
    
    
    
    5.3
    %
    
    
    2,189,033
    
    
    
    5.3
    %Buildings and Real Estate
    
    
    2,075,103
    
    
    
    5.0
    %
    
    
    2,025,668
    
    
    
    4.9
    %Oil & Gas
    
    
    1,282,582
    
    
    
    3.1
    %
    
    
    1,138,136
    
    
    
    2.7
    %Personal & Non-Durable Consumer
Products
    
    
    1,228,100
    
    
    
    2.9
    %
    
    
    1,354,721
    
    
    
    3.3
    %Automobile
    
    
    1,166,654
    
    
    
    2.8
    %
    
    
    1,166,654
    
    
    
    2.8
    %Personal, Food & Miscellaneous Services
    
    
    575,006
    
    
    
    1.4
    %
    
    
    575,006
    
    
    
    1.4
    %Home & Office Furnishings
    
    
    529,743
    
    
    
    1.3
    %
    
    
    529,743
    
    
    
    1.3
    %Insurance
    
    
    421,672
    
    
    
    1.0
    %
    
    
    722,866
    
    
    
    1.7
    %Diversified/Conglomerate Services
    
    
    308,105
    
    
    
    0.9
    %
    
    
    308,105
    
    
    
    0.7
    %$
    41,180,036
    
    
    
    100.0
    %
    
    $
    41,513,977
    
    
    
    100.0
    %
 Our Adviser and Administrator
   Advisory and Administration Agreements
    48




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##### Table of Contents



Management Services and Fees under the Advisory Agreement
   
    
    no incentive fee in any calendar quarter in which our pre-incentive fee FFO does not
exceed the hurdle rate of 1.75% (7% annualized);
    
    100% of the amount of the pre-incentive fee FFO that exceeds the hurdle rate, but is
less than 2.1875% in any calendar quarter (8.75% annualized); and
    
    20% of the amount of our pre-incentive fee FFO that exceeds 2.1875% in any calendar
quarter (8.75% annualized).
 Quarterly Incentive Fee Based on FFO
 
 
   49




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##### Table of Contents



Administration Agreement
  Critical Accounting Policies
  Allocation of Purchase Price
    50




---



##### Table of Contents




    
    The amount of purchase price allocated to the various tangible and intangible assets on
our balance sheet;
    
    The amounts allocated to the value of above-market and below-market lease values are
amortized to rental income over the remaining non-cancelable terms of the respective
leases. The amounts allocated to all other tangible and intangible assets are amortized
to depreciation or amortization expense. Thus, depending on the amounts allocated between
land and other depreciable assets, changes in the purchase price allocation among our
assets could have a material impact on our FFO, a metric which is used by many REIT
investors to evaluate our operating performance; and
    
    The period of time over which tangible and intangible assets are depreciated varies
greatly, and thus, changes in the amounts allocated to these assets will have a direct
impact on our results of operations. Intangible assets are generally amortized over the
respective life of the leases, which normally range from 10 to 15 years. Also, we
depreciate our buildings over 39 years, but do not depreciate our land. These differences
in timing could have a material impact on our results of operations.
 Asset Impairment Evaluation
  Overview Business Environment
 Provision for Loan Losses
  Recently Issued Accounting Pronouncements
  51




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##### Table of Contents



Results of Operations
  A comparison of our operating results for the years ended December 31, 2010 and 2009 is below
 2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeOperating revenuesRental income
    
    $
    41,180,036
    
    
    $
    41,513,977
    
    
    $
    (333,941
    )
    
    
    -1
    %Interest income from mortgage note receivable
    
    
    420,833
    
    
    
    760,417
    
    
    
    (339,584
    )
    
    
    -45
    %Tenant recovery revenue
    
    
    327,201
    
    
    
    334,543
    
    
    
    (7,342
    )
    
    
    -2
    %Total operating revenues
    
    
    41,928,070
    
    
    
    42,608,937
    
    
    
    (680,867
    )
    
    
    -2
    %Operating expensesDepreciation and amortization
    
    
    13,263,814
    
    
    
    13,161,287
    
    
    
    102,527
    
    
    
    1
    %Property operating expenses
    
    
    971,474
    
    
    
    915,120
    
    
    
    56,354
    
    
    
    6
    %Due diligence expense
    
    
    411,776
    
    
    
    40,574
    
    
    
    371,202
    
    
    
    100
    %Base management fee
    
    
    1,198,717
    
    
    
    1,401,402
    
    
    
    (202,685
    )
    
    
    -14
    %Incentive fee
    
    
    3,480,061
    
    
    
    3,238,634
    
    
    
    241,427
    
    
    
    7
    %Administration fee
    
    
    1,063,091
    
    
    
    1,015,695
    
    
    
    47,396
    
    
    
    5
    %Professional fees
    
    
    2,570,522
    
    
    
    649,566
    
    
    
    1,920,956
    
    
    
    100
    %Insurance expense
    
    
    213,103
    
    
    
    203,682
    
    
    
    9,421
    
    
    
    5
    %Directors fees
    
    
    196,735
    
    
    
    198,882
    
    
    
    (2,147
    )
    
    
    -1
    %General and administrative
    
    
    427,948
    
    
    
    442,135
    
    
    
    (14,187
    )
    
    
    -3
    %Total operating expenses before credit
from Adviser
    
    
    23,797,241
    
    
    
    21,266,977
    
    
    
    2,530,264
    
    
    
    12
    %Credit to base management fee
    
    
    (225,000
    )
    
    
    
    
    
    
    (225,000
    )
    
    
    100
    %Credit to incentive fee
    
    
    (157,669
    )
    
    
    (726,448
    )
    
    
    568,779
    
    
    
    -78
    %Total operating expenses
    
    
    23,414,572
    
    
    
    20,540,529
    
    
    
    2,874,043
    
    
    
    14
    %Other income (expense)Interest income from temporary investments
    
    
    8,035
    
    
    
    20,748
    
    
    
    (12,713
    )
    
    
    -61
    %Interest income  employee loans
    
    
    150,882
    
    
    
    192,350
    
    
    
    (41,468
    )
    
    
    -22
    %Other income
    
    
    3,318,230
    
    
    
    12,978
    
    
    
    3,305,252
    
    
    
    100
    %Interest expense
    
    
    (17,062,737
    )
    
    
    (17,894,536
    )
    
    
    831,799
    
    
    
    -5
    %Total other expense
    
    
    (13,585,590
    )
    
    
    (17,668,460
    )
    
    
    4,082,870
    
    
    
    -23
    %Income from continuing operations
    
    
    4,927,908
    
    
    
    4,399,948
    
    
    
    527,960
    
    
    
    12
    %Discontinued operationsIncome from discontinued operations
    
    
    
    
    
    
    43,062
    
    
    
    (43,062
    )
    
    
    -100
    %Gain on sale of real estate
    
    
    
    
    
    
    160,038
    
    
    
    (160,038
    )
    
    
    -100
    %Total discontinued operations
    
    
    
    
    
    
    203,100
    
    
    
    (203,100
    )
    
    
    -100
    %Net income
    
    
    4,927,908
    
    
    
    4,603,048
    
    
    
    324,860
    
    
    
    7
    %Distributions attributable to preferred stock
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    
    
    
    
    0
    %Net income available to common stockholders
    
    $
    814,108
    
    
    $
    509,298
    
    
    $
    304,810
    
    
    
    60
    %
 52




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##### Table of Contents



Operating Revenues
    Operating Expenses
    Advisory and Administration Agreements.
 Advisory and Administration Agreements.
 Advisory and Administration Agreements.
 Overview - Recent
 53




---



##### Table of Contents



Events-Equity Activities
    Other Income and Expense
     Discontinued Operations
  54




---



##### Table of Contents



Net Income Available to Common Stockholders
  A comparison of our operating results for the years ended December 31, 2009 and 2008 is below
 For the year ended December 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeOperating revenuesRental income
    
    $
    41,513,977
    
    
    $
    39,572,287
    
    
    $
    1,941,690
    
    
    
    5
    %Interest income from mortgage note receivable
    
    
    760,417
    
    
    
    898,573
    
    
    
    (138,156
    )
    
    
    -15
    %Tenant recovery revenue
    
    
    334,543
    
    
    
    336,637
    
    
    
    (2,094
    )
    
    
    -1
    %Total operating revenues
    
    
    42,608,937
    
    
    
    40,807,497
    
    
    
    1,801,440
    
    
    
    4
    %Operating expensesDepreciation and amortization
    
    
    13,161,287
    
    
    
    12,679,437
    
    
    
    481,850
    
    
    
    4
    %Property operating expenses
    
    
    915,120
    
    
    
    875,850
    
    
    
    39,270
    
    
    
    4
    %Due diligence expense
    
    
    40,574
    
    
    
    1,176,379
    
    
    
    (1,135,805
    )
    
    
    -97
    %Base management fee
    
    
    1,401,402
    
    
    
    1,637,851
    
    
    
    (236,449
    )
    
    
    -14
    %Incentive fee
    
    
    3,238,634
    
    
    
    2,831,722
    
    
    
    406,912
    
    
    
    14
    %Administration fee
    
    
    1,015,695
    
    
    
    954,635
    
    
    
    61,060
    
    
    
    6
    %Professional fees
    
    
    649,566
    
    
    
    521,410
    
    
    
    128,156
    
    
    
    25
    %Insurance expense
    
    
    203,682
    
    
    
    173,414
    
    
    
    30,268
    
    
    
    17
    %Directors fees
    
    
    198,882
    
    
    
    216,851
    
    
    
    (17,969
    )
    
    
    -8
    %General and administrative
    
    
    442,135
    
    
    
    493,119
    
    
    
    (50,984
    )
    
    
    -10
    %Total operating expenses before credit
from Adviser
    
    
    21,266,977
    
    
    
    21,560,668
    
    
    
    (293,691
    )
    
    
    -1
    %Credit to incentive fee
    
    
    (726,448
    )
    
    
    (2,196,945
    )
    
    
    1,470,497
    
    
    
    -67
    %Total operating expenses
    
    
    20,540,529
    
    
    
    19,363,723
    
    
    
    1,176,806
    
    
    
    6
    %Other income (expense)Interest income from temporary investments
    
    
    20,748
    
    
    
    21,844
    
    
    
    (1,096
    )
    
    
    -5
    %Interest income  employee loans
    
    
    192,350
    
    
    
    202,097
    
    
    
    (9,747
    )
    
    
    -5
    %Other income
    
    
    12,978
    
    
    
    63,993
    
    
    
    (51,015
    )
    
    
    -80
    %Interest expense
    
    
    (17,894,536
    )
    
    
    (16,858,687
    )
    
    
    (1,035,849
    )
    
    
    6
    %Total other expense
    
    
    (17,668,460
    )
    
    
    (16,570,753
    )
    
    
    (1,097,707
    )
    
    
    7
    %Income from continuing operations
    
    
    4,399,948
    
    
    
    4,873,021
    
    
    
    (473,073
    )
    
    
    -10
    %Discontinued operationsIncome from discontinued operations
    
    
    43,062
    
    
    
    39,926
    
    
    
    3,136
    
    
    
    8
    %Gain on sale of real estate
    
    
    160,038
    
    
    
    
    
    
    
    160,038
    
    
    
    100
    %Total discontinued operations
    
    
    203,100
    
    
    
    39,926
    
    
    
    163,174
    
    
    
    409
    %Net income
    
    
    4,603,048
    
    
    
    4,912,947
    
    
    
    (309,899
    )
    
    
    -6
    %Distributions attributable to preferred stock
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    
    
    
    
    0
    %Net income available to common stockholders
    
    $
    509,298
    
    
    $
    819,197
    
    
    $
    (309,899
    )
    
    
    -38
    %
 55




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##### Table of Contents



Operating Revenues
    Operating Expenses
    Advisory and Administration Agreements.
 Advisory and Administration Agreements.
 Advisory
and Administration Agreements.
 56




---



##### Table of Contents



Other Income and Expense
     Discontinued Operations
  Net Income Available to Common Stockholders
  57




---



##### Table of Contents



Liquidity and Capital Resources
 Future Capital Needs
 Overview
  Overview  Business Environment
 Equity Capital
 Overview  Recent Events
  Debt Capital
 Overview  Business Environment Mortgage Notes Payable
  58




---



##### Table of Contents



Line of Credit
 Future Capital Needs
   Operating Activities
  Investing Activities
  59




---



##### Table of Contents



Overview Business Environment
 Financing Activities
  Mortgage Notes Payable
  Overview-Recent Events
 Line of Credit
  60




---



##### Table of Contents



61




---



##### Table of Contents



Contractual Obligations
  Payments Due by PeriodContractual Obligations
    
    Total
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    More than 5 YearsDebt Obligations (1)
    
    
    287,869,463
    
    
    $
    51,456,852
    
    
    $
    43,408,839
    
    
    $
    82,833,896
    
    
    $
    110,169,876Interest on Debt Obligations (2)
    
    
    70,230,333
    
    
    
    14,451,711
    
    
    
    25,013,783
    
    
    
    20,841,322
    
    
    
    9,923,517Capital Lease Obligations (3)
    
    
    300,000
    
    
    
    
    
    
    
    300,000
    
    
    
    
    
    
    
    Operating Lease Obligations (4)
    
    
    1,601,357
    
    
    
    152,510
    
    
    
    305,020
    
    
    
    305,020
    
    
    
    838,807Total
    
    $
    360,001,153
    
    
    $
    66,061,073
    
    
    $
    69,027,642
    
    
    $
    103,980,238
    
    
    $
    120,932,200
 
 (1)
    
    Debt obligations represent borrowings under our line of credit, which represents $27.0 million of the debt obligation due in 2013,
and mortgage notes payable that were outstanding as of December 31, 2010.The $48.0 million mortgage note issued in September 2008 matures in October 2011, and we expect to exercise each of our options
to extend the maturity date until October 2013.(2)
    
    Interest on debt obligations includes estimated interest on our borrowings under our line of credit.
The balance and interest rate on our line of credit is variable; thus, the amount of interest calculated for purposes of this table was based upon rates and
balances as of December 31, 2010.(3)
    
    Capital lease obligations represent the obligation to purchase the land held under the ground lease on our property located in Fridley, Minnesota.(4)
    
    Operating lease obligations represent the ground lease payments due on our Tulsa, Oklahoma property. The lease expires in June 2021. Off-Balance Sheet Arrangements
  62




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    Increase to Rental
    
    
    Increase to Interest
    
    
    Net Decrease toInterest Rate Change
    
    & Interest Income
    
    
    Expense
    
    
    Net Income1% Increase to LIBOR
    
    $
    
    
    
    $
    279,000
    
    
    $
    (279,000
    )2% Increase to LIBOR
    
    
    
    
    
    
    558,000
    
    
    
    (558,000
    )3% Increase to LIBOR
    
    
    959
    
    
    
    837,000
    
    
    
    (836,041
    )
    63




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Index to Consolidated Financial Statements
          64




---



##### Table of Contents



Report of Management on Internal Controls over Financial Reporting
    Internal Control -
Integrated Framework
   65




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
  66




---



##### Table of Contents



67




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##### Table of Contents



GLADSTONE COMMERCIAL CORPORATION
 CONSOLIDATED BALANCE SHEETS
 December 31, 2010
    
    
    December 31, 2009ASSETSReal estate, at cost
    
    $
    401,016,940
    
    
    $
    390,753,892Less: accumulated depreciation
    
    
    43,659,456
    
    
    
    34,111,952Total real estate, net
    
    
    357,357,484
    
    
    
    356,641,940Lease intangibles, net
    
    
    26,746,992
    
    
    
    28,177,461Mortgage note receivable
    
    
    
    
    
    
    10,000,000Cash and cash equivalents
    
    
    7,061,504
    
    
    
    3,096,598Restricted cash
    
    
    2,288,410
    
    
    
    2,633,538Funds held in escrow
    
    
    2,621,091
    
    
    
    2,487,680Deferred rent receivable
    
    
    10,373,508
    
    
    
    8,975,196Deferred financing costs, net
    
    
    3,325,740
    
    
    
    3,136,055Other assets
    
    
    833,873
    
    
    
    1,716,905TOTAL ASSETS
    
    $
    410,608,602
    
    
    $
    416,865,373LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESMortgage notes payable
    
    $
    260,869,463
    
    
    $
    252,761,651Borrowings under line of credit
    
    
    27,000,000
    
    
    
    33,200,000Deferred rent liability
    
    
    2,276,033
    
    
    
    3,213,195Asset retirement obligation liability
    
    
    3,062,768
    
    
    
    2,305,644Accounts payable and accrued expenses
    
    
    2,682,915
    
    
    
    2,086,741Due to Adviser (1)
    
    
    965,373
    
    
    
    1,213,640Other liabilities
    
    
    2,377,743
    
    
    
    3,633,960Total Liabilities
    
    
    299,234,295
    
    
    
    298,414,831STOCKHOLDERS EQUITYRedeemable preferred stock, $0.001 par value; $25 liquidation
preference;
2,300,000 shares authorized and 2,150,000 shares issued and
outstanding at December 31, 2010 and 2009, respectively
    
    
    2,150
    
    
    
    2,150Senior common stock, $0.001 par value; 7,500,000 shares
authorized and
59,057 and 0 shares issued and outstanding at December 31,
2010 and 2009, respectively
    
    
    59
    
    
    
    Common stock, $0.001 par value, 40,200,000 shares authorized and
8,724,613 and 8,563,264 shares issued and outstanding at
December 31, 2010 and 2009, respectively
    
    
    8,725
    
    
    
    8,563Additional paid in capital
    
    
    174,260,531
    
    
    
    170,622,581Notes receivable  employees
    
    
    (963,433
    )
    
    
    (2,304,999
    )Distributions in excess of accumulated earnings
    
    
    (61,933,725
    )
    
    
    (49,877,753
    )Total Stockholders Equity
    
    
    111,374,307
    
    
    
    118,450,542TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    410,608,602
    
    
    $
    416,865,373
 
 (1)
    
    Refer to Note 2 Related-Party Transactions  68




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##### Table of Contents



GLADSTONE COMMERCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the year ended December 31,2010
    
    
    2009
    
    
    2008Operating revenuesRental income
    
    $
    41,180,036
    
    
    $
    41,513,977
    
    
    $
    39,572,287Interest income from mortgage note receivable
    
    
    420,833
    
    
    
    760,417
    
    
    
    898,573Tenant recovery revenue
    
    
    327,201
    
    
    
    334,543
    
    
    
    336,637Total operating revenues
    
    
    41,928,070
    
    
    
    42,608,937
    
    
    
    40,807,497Operating expensesDepreciation and amortization
    
    
    13,263,814
    
    
    
    13,161,287
    
    
    
    12,679,437Property operating expenses
    
    
    971,474
    
    
    
    915,120
    
    
    
    875,850Due diligence expense
    
    
    411,776
    
    
    
    40,574
    
    
    
    1,176,379Base management fee (1)
    
    
    1,198,717
    
    
    
    1,401,402
    
    
    
    1,637,851Incentive fee (1)
    
    
    3,480,061
    
    
    
    3,238,634
    
    
    
    2,831,722Administration fee (1)
    
    
    1,063,091
    
    
    
    1,015,695
    
    
    
    954,635Professional fees
    
    
    2,570,522
    
    
    
    649,566
    
    
    
    521,410Insurance expense
    
    
    213,103
    
    
    
    203,682
    
    
    
    173,414Directors fees
    
    
    196,735
    
    
    
    198,882
    
    
    
    216,851General and administrative
    
    
    427,948
    
    
    
    442,135
    
    
    
    493,119Total operating expenses before credits from Adviser
    
    
    23,797,241
    
    
    
    21,266,977
    
    
    
    21,560,668Credit to base management fee
    
    
    (225,000
    )
    
    
    
    
    
    
    Credit to incentive fee
    
    
    (157,669
    )
    
    
    (726,448
    )
    
    
    (2,196,945
    )Total operating expenses
    
    
    23,414,572
    
    
    
    20,540,529
    
    
    
    19,363,723Other income (expense)Interest income from temporary investments
    
    
    8,035
    
    
    
    20,748
    
    
    
    21,844Interest income  employee loans
    
    
    150,882
    
    
    
    192,350
    
    
    
    202,097Other income
    
    
    3,318,230
    
    
    
    12,978
    
    
    
    63,993Interest expense
    
    
    (17,062,737
    )
    
    
    (17,894,536
    )
    
    
    (16,858,687
    )Total other expense
    
    
    (13,585,590
    )
    
    
    (17,668,460
    )
    
    
    (16,570,753
    )Income from continuing operations
    
    
    4,927,908
    
    
    
    4,399,948
    
    
    
    4,873,021Discontinued operationsIncome from discontinued operations
    
    
    
    
    
    
    43,062
    
    
    
    39,926Gain on sale of real estate
    
    
    
    
    
    
    160,038
    
    
    
    Total discontinued operations
    
    
    
    
    
    
    203,100
    
    
    
    39,926Net income
    
    
    4,927,908
    
    
    
    4,603,048
    
    
    
    4,912,947Distributions attributable to preferred stock
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )Distributions attributable to senior common stock
    
    
    (20,050
    )
    
    
    
    
    
    
    Net income available to common stockholders
    
    $
    814,108
    
    
    $
    509,298
    
    
    $
    819,197Earnings per weighted average share of common stock  basicIncome from continuing operations (net of distributions attributable to preferred stock)
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    0.09Discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    0.01Net income available to common stockholders
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.10Earnings per weighted average share of common stock  dilutedIncome from continuing operations (net of dividends attributable to preferred stock)
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    0.09Discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    0.01Net income available to common stockholders
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.10Weighted average shares of common stock outstanding  basic
    
    
    8,576,303
    
    
    
    8,563,264
    
    
    
    8,565,149Weighted
average shares of common stock outstanding  diluted
    
    
    8,601,153
    
    
    
    8,563,264
    
    
    
    8,565,149Earnings per weighted average share of senior common stock
    
    $
    0.81
    
    
    $
    
    
    
    $
    Weighted average shares of senior common stock outstanding  basic
    
    
    24,850
    
    
    
    0
    
    
    
    0
 
 (1)
    
    Refer to Note 2 Related-Party Transactions  69




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##### Table of Contents



GLADSTONE COMMERCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Distributions inCapital in
    
    
    Notes
    
    
    Excess of
    
    
    TotalPreferred
    
    
    Senior Common
    
    
    Common
    
    
    Excess of
    
    
    Receivable
    
    
    Accumulated
    
    
    StockholdersStock
    
    
    Stock
    
    
    Stock
    
    
    Par Value
    
    
    from Employees
    
    
    Earnings
    
    
    EquityBalance at December
31, 2007
    
    $
    2,150
    
    
    
    
    
    
    $
    8,565
    
    
    $
    170,640,979
    
    
    $
    (2,769,923
    )
    
    $
    (25,513,703
    )
    
    $
    142,368,068Forfeiture of
Common Stock
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (18,398
    )
    
    
    
    
    
    
    
    
    
    
    (18,400
    )Repayment of
Principal on Notes
Receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    174,037
    
    
    
    
    
    
    
    174,037Distributions
Declared to Common
and Preferred
Stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,941,392
    )
    
    
    (16,941,392
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,912,947
    
    
    
    4,912,947Balance at December
31, 2008
    
    $
    2,150
    
    
    $
    
    
    
    $
    8,563
    
    
    $
    170,622,581
    
    
    $
    (2,595,886
    )
    
    $
    (37,542,148
    )
    
    $
    130,495,260Repayment of
Principal on Notes
Receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,887
    
    
    
    
    
    
    
    45,887Reclassification of
Loan Balance to
Other Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245,000
    
    
    
    
    
    
    
    245,000Distributions
Declared to Common
and Preferred
Stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,938,653
    )
    
    
    (16,938,653
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,603,048
    
    
    
    4,603,048Balance at December
31, 2009
    
    $
    2,150
    
    
    $
    
    
    
    $
    8,563
    
    
    $
    170,622,581
    
    
    $
    (2,304,999
    )
    
    $
    (49,877,753
    )
    
    $
    118,450,542Issuance of senior
common stock and
common stock
    
    
    
    
    
    
    59
    
    
    
    180
    
    
    
    3,881,832
    
    
    
    
    
    
    
    
    
    
    
    3,882,071Repayment of
principal on notes
receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,341,566
    
    
    
    
    
    
    
    1,341,566Distributions
declared to common,
senior common and
preferred
stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,983,880
    )
    
    
    (16,983,880
    )Forfeiture of
common stock in
satisfaction of
employee note
receivable
(1)
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    (243,882
    )
    
    
    
    
    
    
    
    
    
    
    (243,900
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,927,908
    
    
    
    4,927,908Balance at December
31, 2010
    
    $
    2,150
    
    
    $
    59
    
    
    $
    8,725
    
    
    $
    174,260,531
    
    
    $
    (963,433
    )
    
    $
    (61,933,725
    )
    
    $
    111,374,307
 
 (1)
    
    On February 1, 2010, the maturity date of an employee stock option loan to a former
employee of the Adviser was extended until August 2010. In connection with the extension of the
loan, the recourse provision of the loan was removed, and the former employee was granted the
option to either repay the principal and interest in full or return the 18,000 shares pledged
against the loan to the Company in full satisfaction of the loan. On March 8, 2010, the date that
the market price of the pledged shares equaled the balance of the outstanding loan, the pledged
shares were returned to the Company, and the loan was deemed paid in full.  70




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##### Table of Contents



GLADSTONE COMMERCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the year ended December 31,2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    4,927,908
    
    
    $
    4,603,048
    
    
    $
    4,912,947Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization, including discontinued operations
    
    
    13,263,814
    
    
    
    13,171,703
    
    
    
    12,704,641Amortization of deferred financing costs
    
    
    1,002,428
    
    
    
    1,491,389
    
    
    
    1,283,956Amortization of deferred rent asset and liability, net
    
    
    (683,666
    )
    
    
    (532,068
    )
    
    
    (532,066
    )Amortization of discount on assumed debt
    
    
    11,301
    
    
    
    
    
    
    
    Asset retirement obligation expense, including discontinued operations
    
    
    143,060
    
    
    
    143,550
    
    
    
    133,244Gain on sale of real estate
    
    
    
    
    
    
    (160,038
    )
    
    
    Decrease (increase) in other assets
    
    
    389,133
    
    
    
    (959,738
    )
    
    
    172,096Increase in deferred rent receivable
    
    
    (1,651,809
    )
    
    
    (1,177,167
    )
    
    
    (2,387,509
    )Increase in accounts payable, accrued expenses, and amount due Adviser
    
    
    347,908
    
    
    
    735,492
    
    
    
    1,001,639Increase (decrease) in other liabilities
    
    
    363,366
    
    
    
    (302,914
    )
    
    
    286,227Net cash provided by operating activities
    
    
    18,113,443
    
    
    
    17,013,257
    
    
    
    17,575,175Cash flows from investing activities:Real estate investments
    
    
    (2,418,534
    )
    
    
    (1,139,711
    )
    
    
    (49,359,852
    )Leasing commissions paid
    
    
    (7,044
    )
    
    
    (441,745
    )
    
    
    Proceeds from sale of real estate
    
    
    
    
    
    
    1,089,269
    
    
    
    Principal repayments on mortgage notes receivable
    
    
    10,000,000
    
    
    
    
    
    
    
    Receipts from lenders for reserves held in escrow
    
    
    1,617,933
    
    
    
    1,465,133
    
    
    
    874,227Payments to lenders for reserves held in escrow
    
    
    (1,751,344
    )
    
    
    (1,801,894
    )
    
    
    (1,623,452
    )Decrease (increase) in restricted cash
    
    
    345,128
    
    
    
    44,023
    
    
    
    (763,494
    )Deposits on future acquisitions
    
    
    
    
    
    
    (250,000
    )
    
    
    (1,650,000
    )Deposits refunded
    
    
    250,000
    
    
    
    200,000
    
    
    
    1,750,000Net cash provided by (used in) investing activities
    
    
    8,036,139
    
    
    
    (834,925
    )
    
    
    (50,772,571
    )Cash flows from financing activities:Proceeds from issuance of common and senior common stock
    
    
    4,126,690
    
    
    
    
    
    
    
    Offering costs
    
    
    (248,829
    )
    
    
    
    
    
    
    Borrowings under mortgage notes payable
    
    
    
    
    
    
    
    
    
    
    48,015,000Principal repayments on mortgage notes payable
    
    
    (2,687,192
    )
    
    
    (2,349,522
    )
    
    
    (1,485,901
    )Principal repayments on employee notes receivable
    
    
    1,341,566
    
    
    
    290,887
    
    
    
    155,637Borrowings from line of credit
    
    
    32,794,746
    
    
    
    57,600,000
    
    
    
    76,900,000Repayments on line of credit
    
    
    (38,994,746
    )
    
    
    (35,900,000
    )
    
    
    (69,800,000
    )Repayment of short-term loan
    
    
    
    
    
    
    (20,000,000
    )
    
    
    Receipts from tenants for reserves
    
    
    2,154,699
    
    
    
    4,454,102
    
    
    
    2,391,360Payments to tenants from reserves
    
    
    (2,130,232
    )
    
    
    (4,526,409
    )
    
    
    (2,159,671
    )(Decrease) increase in security deposits
    
    
    (369,595
    )
    
    
    28,282
    
    
    
    531,806Payments for deferred financing costs
    
    
    (1,192,113
    )
    
    
    (243,999
    )
    
    
    (1,262,273
    )Distributions paid for common and preferred
    
    
    (16,979,670
    )
    
    
    (16,938,653
    )
    
    
    (16,941,392
    )Net cash (used in) provided by financing activities
    
    
    (22,184,676
    )
    
    
    (17,585,312
    )
    
    
    36,344,566Net increase (decrease) in cash and cash equivalents
    
    
    3,964,906
    
    
    
    (1,406,980
    )
    
    
    3,147,170Cash and cash equivalents, beginning of year
    
    
    3,096,598
    
    
    
    4,503,578
    
    
    
    1,356,408Cash and cash equivalents, end of year
    
    $
    7,061,504
    
    
    $
    3,096,598
    
    
    $
    4,503,578Cash paid during period for interest
    
    $
    17,969,864
    
    
    $
    16,558,955
    
    
    $
    14,337,944NON-CASH OPERATING, INVESTING AND FINANCING INFORMATIONIncrease in asset retirement obligation
    
    $
    614,064
    
    
    $
    
    
    
    $
    245,196Fixed rate debt assumed in connection with acquisitions
    
    $
    10,795,004
    
    
    $
    
    
    
    $
    6,461,603Obligation under capital lease
    
    $
    
    
    
    $
    
    
    
    $
    225,068Forfeiture of common stock in satisfaction of employee note receivable
    
    $
    243,900
    
    
    $
    
    
    
    $
    18,400Senior common dividend issued in the dividend reinvestment program
    
    $
    4,210
    
    
    $
    
    
    
    $
    Reclassificaton of principal on employee note (Refer to Note 8)
    
    $
    
    
    
    $
    245,000
    
    
    $
    Leasing commissions included in accounts payable
    
    $
    457,939
    
    
    $
    
    
    
    $
    
  71




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##### Table of Contents



GLADSTONE COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Significant Accounting Policies
  Subsidiaries
     Investments in Real Estate
   72




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##### Table of Contents



73




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##### Table of Contents



Impairment
 Investments in Real Estate
   Provision for Loan Losses
  Cash and Cash Equivalents
  Restricted Cash
  Funds Held in Escrow
  74




---



##### Table of Contents



Deferred Financing Costs
  Obligation Under Capital Lease
  Revenue Recognition
    75




---



##### Table of Contents



Income Taxes
   Segment Information
  Asset Retirement Obligations
  Stock Issuance Costs
  76




---



##### Table of Contents



Other Income
  Real Estate Held for Sale and Discontinued Operations
  Recently Issued Accounting Pronouncements
  Use of Estimates
  2. Related-Party Transactions
  Advisory Agreement
  77




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##### Table of Contents



Administration Agreement
  3. Earnings per Share of Common Stock
  78




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##### Table of Contents



For the year ended December 31,2010
    
    
    2009
    
    
    2008Calculation of basic earnings per share of common stock:Net income available to common stockholders
    
    $
    814,108
    
    
    $
    509,298
    
    
    $
    819,197Denominator for basic weighted average shares of common stock
    
    
    8,576,303
    
    
    
    8,563,264
    
    
    
    8,565,149Basic earnings per share of common stock
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.10Calculation of diluted earnings per share of comon stock:Net income available to common stockholders
    
    $
    814,108
    
    
    $
    509,298
    
    
    $
    819,197Add: Income impact of assumed conversion of senior common stock
    
    
    20,050
    
    
    
    
    
    
    
    Net income available to common stockholders plus assumed conversions
    
    $
    834,158
    
    
    $
    509,298
    
    
    $
    819,197Denominator for basic weighted average shares of common stock
    
    
    8,576,303
    
    
    
    8,563,264
    
    
    
    8,565,149Effect of convertible senior common stock
    
    
    24,850
    
    
    
    
    
    
    
    Denominator for diluted weighted average shares of common stock
    
    
    8,601,153
    
    
    
    8,563,264
    
    
    
    8,565,149Diluted earnings per share of common stock
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.10
 4. Real Estate and Intangible Assets
 Real Estate
  December 31, 2010
    
    
    December 31, 2009Real estate:Land
    
    $
    55,157,807
    (1)
    
    $
    55,025,707
    (1)Building and
improvements
    
    
    335,575,857
    
    
    
    325,907,479Tenant improvements
    
    
    10,283,276
    
    
    
    9,820,706Accumulated
depreciation
    
    
    (43,659,456
    )
    
    
    (34,111,952
    )Real estate, net
    
    $
    357,357,484
    
    
    $
    356,641,940
 
 (1)
    
    Includes land held under a capital lease carried at approximately $1.1 million.    79




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##### Table of Contents



Customer
    
    
    Discount on AssumedLand
    
    
    Building
    
    
    Tenant Improvements
    
    
    In-place Leases
    
    
    Leasing Costs
    
    
    Relationships
    
    
    Debt
    
    
    Total Purchase PriceOrange City, Iowa
    
    $
    132,100
    
    
    $
    8,306,160
    
    
    $
    462,570
    
    
    $
    1,076,020
    
    
    $
    245,583
    
    
    $
    499,255
    
    
    $
    1,285,757
    
    
    $
    12,007,445$
    132,100
    
    
    $
    8,306,160
    
    
    $
    462,570
    
    
    $
    1,076,020
    
    
    $
    245,583
    
    
    $
    499,255
    
    
    $
    1,285,757
    
    
    $
    12,007,445
  TenantYear
    
    Lease Payments2011
    
    $
    39,643,9432012
    
    
    39,768,0592013
    
    
    35,346,1892014
    
    
    31,246,9372015
    
    
    27,180,934Thereafter
    
    
    174,244,975
      80




---



##### Table of Contents



Intangible Assets
  December 31, 2010
    
    
    December 31, 2009Accumulated
    
    
    
    
    
    
    AccumulatedLease Intangibles
    
    
    Amortization
    
    
    Lease Intangibles
    
    
    AmortizationIn-place leases
    
    $
    17,011,466
    
    
    $
    (8,362,167
    )
    
    $
    15,935,445
    
    
    $
    (6,741,817
    )Leasing costs
    
    
    10,763,570
    
    
    
    (4,684,857
    )
    
    
    10,053,004
    
    
    
    (3,832,623
    )Customer relationships
    
    
    17,635,756
    
    
    
    (5,616,776
    )
    
    
    17,136,501
    
    
    
    (4,373,049
    )$
    45,410,792
    
    
    $
    (18,663,800
    )
    
    $
    43,124,950
    
    
    $
    (14,947,489
    )
  Year
    
    Estimated             Amortization Expense2011
    
    $
    5,900,9642012
    
    
    4,617,5202013
    
    
    2,589,1172014
    
    
    2,343,2032015
    
    
    1,968,738Thereafter
    
    
    9,327,450
 5. Real Estate Held for Sale and Discontinued Operations
   81




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##### Table of Contents



For the year ended December 31,2010
    
    
    2009
    
    
    2008Operating revenue
    
    $
    
    
    
    $
    56,202
    
    
    $
    103,501Operating expense
    
    
    
    
    
    
    (13,140
    )
    
    
    (63,575
    )Gain on sale of real estate
    
    
    
    
    
    
    160,038
    
    
    
    Income from discontinued
operations
    
    $
    
    
    
    $
    203,100
    
    
    $
    39,926
 6. Mortgage Note Receivable
  82




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##### Table of Contents



7. Mortgage Notes Payable and Line of Credit
  Stated InterestRate at DecemberDate of Issuance/
    
    
    Principal Maturity
    
    
    31, 2010
    
    
    Principal Balance OutstandingAssumption
    
    
    Date
    
    
    (1)
    
    
    December 31, 2010
    
    
    December 31, 2009Fixed-Rate Mortgage Notes Payable:09/15/08
    
    
    
    10/01/11
    (2)
    
    
    4.58
    %
    
    $
    48,015,000
    
    
    $
    48,015,00002/21/06
    
    
    
    12/01/13
    
    
    
    5.91
    %
    
    
    9,021,517
    
    
    
    9,188,04402/21/06
    
    
    
    06/30/14
    
    
    
    5.20
    %
    
    
    18,740,559
    
    
    
    19,116,27708/25/05
    
    
    
    09/01/15
    
    
    
    5.33
    %
    
    
    20,771,247
    
    
    
    21,093,91709/12/05
    
    
    
    09/01/15
    
    
    
    5.21
    %
    
    
    12,209,365
    
    
    
    12,389,64712/21/05
    
    
    
    12/08/15
    
    
    
    5.71
    %
    
    
    18,727,935
    
    
    
    18,991,93409/06/07
    
    
    
    12/11/15
    
    
    
    5.81
    %
    
    
    4,291,947
    
    
    
    4,361,14403/29/06
    
    
    
    04/01/16
    
    
    
    5.92
    %
    
    
    17,000,000
    
    
    
    17,000,00004/27/06
    
    
    
    05/05/16
    
    
    
    6.58
    %
    
    
    13,719,529
    
    
    
    14,009,91808/29/08
    
    
    
    06/01/16
    
    
    
    6.80
    %
    
    
    6,162,508
    
    
    
    6,296,50511/22/06
    
    
    
    12/01/16
    
    
    
    5.76
    %
    
    
    13,954,519
    
    
    
    14,136,92112/22/06
    
    
    
    01/01/17
    
    
    
    5.79
    %
    
    
    21,329,510
    
    
    
    21,605,10602/08/07
    
    
    
    03/01/17
    
    
    
    6.00
    %
    
    
    13,775,000
    
    
    
    13,775,00006/05/07
    
    
    
    06/08/17
    
    
    
    6.11
    %
    
    
    14,240,000
    
    
    
    14,240,00010/15/07
    
    
    
    11/08/17
    
    
    
    6.63
    %
    
    
    15,474,173
    
    
    
    15,657,33012/15/10
    
    
    
    12/10/26
    
    
    
    6.63
    %
    
    
    10,795,004
    
    
    
    03/16/05
    
    
    
    04/01/30
    
    
    
    6.33
    %
    
    
    2,641,650
    
    
    
    2,884,908Total Fixed-Rate Mortgage Notes Payable:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,869,463
    
    
    
    252,761,651Variable-Rate Line of Credit:
    
    
    12/28/10
    
    
    
    12/27/13
    
    
    LIBOR +3.00%
    
    
    27,000,000
    
    
    
    33,200,000Total Mortgage Notes Payable and Line of Credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    287,869,463
    
    
    $
    285,961,651
 
 (1)
    
    The weighted average interest rate on all debt outstanding at
December 31, 2010 was approximately 5.43%.(2)
    
    This note has three annual extension options, which gives the Company the
ability to extend the term of the note until October 1, 2013. The first of these options was
exercised on September 30, 2010. Mortgage Notes Payable
   83




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Year
    
    Scheduled principal payments2011
    
    $
    51,456,852
    (1)2012
    
    
    3,792,2602013
    
    
    12,616,5792014
    
    
    21,251,5892015
    
    
    55,082,307Thereafter
    
    
    116,669,876$
    260,869,463
 
 (1)
    
    The $48.0 million mortgage note issued
in September 2008 was extended September 30, 2010 for one
year. The Company expects to exercise additional options
to extend the maturity date until October 2013. Line of Credit
  84




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8. Stockholders Equity
   85




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##### Table of Contents



Long-Term CapitalOrdinary Income
    
    Return of Capital
    
    GainsCommon StockFor the year ended December 31, 2008
    
    
    9.26770
    %
    
    
    90.73230
    %
    
    
    0.00000
    %For the year ended
December 31, 2009
    
    
    6.04080
    %
    
    
    93.95920
    %
    
    
    0.00000
    %For the year ended
December 31, 2010
    
    
    15.76540
    %
    
    
    84.23460
    %
    
    
    0.00000
    %Series A Preferred StockFor the year ended
December 31, 2008
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %For the year ended
December 31, 2009
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %For the year ended
December 31, 2010
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %Series B Preferred StockFor the year ended
December 31, 2008
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %For the year ended
December 31, 2009
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %For the year ended
December 31, 2010
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %
  Outstanding Balance
    
    Outstanding BalanceNumber of
    
    
    
    
    
    Amount of
    
    of Employee Loans
    
    of Employee LoansOptions
    
    Strike Price of
    
    Promissory Note
    
    at December 31,
    
    at December 31,
    
    Maturity Date
    
    Interest RateDate Issued
    
    Exercised
    
    Options Exercised
    
    Issued to Employees
    
    2010
    
    2009
    
    of Note
    
    on NoteSep 2004
    
    
    25,000
    
    
    $
    15.00
    
    
    $
    375,000
    
    
    $
    20,253
    
    
    $
    358,405
    
    
    Sep 2013
    
    
    5.00
    %Apr 2006
    
    
    12,422
    
    
    
    16.10
    
    
    
    199,994
    
    
    
    4,563
    
    
    
    199,994
    
    
    Apr 2015
    
    
    7.77
    %May 2006
    
    
    50,000
    
    
    
    16.85
    
    
    
    842,500
    
    
    
    531,417
    
    
    
    842,500
    
    
    May 2016
    
    
    7.87
    %May 2006
    
    
    15,000
    
    
    
    16.10
    
    
    
    241,500
    
    
    
    
    
    
    
    241,500
    
    
    May 2016
    
    
    7.87
    %May 2006
    
    
    2,000
    
    
    
    16.10
    
    
    
    32,200
    
    
    
    32,200
    
    
    
    32,200
    
    
    May 2016
    
    
    7.87
    %May 2006
    
    
    2,000
    
    
    
    16.10
    
    
    
    32,200
    
    
    
    
    
    
    
    32,200
    
    
    May 2016
    
    
    7.87
    %May 2006
    
    
    2,000
    
    
    
    15.00
    
    
    
    30,000
    
    
    
    
    
    
    
    30,000
    
    
    May 2016
    
    
    7.87
    %Oct 2006
    
    
    12,000
    
    
    
    16.10
    
    
    
    193,200
    
    
    
    
    
    
    
    193,200
    
    
    Oct 2015
    
    
    8.17
    %Nov 2006
    
    
    25,000
    
    
    
    15.00
    
    
    
    375,000
    
    
    
    375,000
    
    
    
    375,000
    
    
    Nov 2015
    
    
    8.15
    %145,422
    
    
    
    
    
    
    $
    2,321,594
    
    
    $
    963,433
    
    
    $
    2,304,999
    86




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9. Segment Information
  87




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##### Table of Contents



As of and for the year ended December 31, 2010Real Estate
    
    
    Real EstateLeasing
    
    
    Lending
    
    
    Other
    
    
    TotalOperating revenues
    
    $
    41,507,237
    
    
    $
    420,833
    
    
    $
    
    
    
    $
    41,928,070Operating expenses
    
    
    (14,790,124
    )
    
    
    
    
    
    
    (8,624,448
    )(1)
    
    
    (23,414,572)Other expense
    
    
    (16,065,957
    )
    
    
    
    
    
    
    2,480,367
    (2)
    
    
    (13,585,590)Net income
    
    $
    10,651,156
    
    
    $
    420,833
    
    
    $
    (6,144,081
    )
    
    $
    4,927,908Total Assets
    
    $
    400,616,254
    
    
    $
    
    
    
    $
    9,992,348
    
    
    $
    410,608,602
 As of and for the year ended December 31, 2009Real Estate
    
    
    Real EstateLeasing
    
    
    Lending
    
    
    Other
    
    
    TotalOperating revenues
    
    $
    41,848,520
    
    
    $
    760,417
    
    
    $
    
    
    
    $
    42,608,937Operating expenses
    
    
    (14,260,070
    )
    
    
    
    
    
    
    (6,280,459
    )(1)
    
    
    (20,540,529)Other expense
    
    
    (16,480,535
    )
    
    
    
    
    
    
    (1,187,925
    )(2)
    
    
    (17,668,460)Discontinued
operations
    
    
    203,100
    
    
    
    
    
    
    
    
    
    
    
    203,100Net income
    
    $
    11,311,015
    
    
    $
    760,417
    
    
    $
    (7,468,384
    )
    
    $
    4,603,048Total Assets
    
    $
    399,867,563
    
    
    $
    10,000,000
    
    
    $
    6,997,810
    
    
    $
    416,865,373
 As of and for the year ended December 31, 2008Real Estate
    
    
    Real EstateLeasing
    
    
    Lending
    
    
    Other
    
    
    TotalOperating revenues
    
    $
    39,908,924
    
    
    $
    898,573
    
    
    $
    
    
    
    $
    40,807,497Operating expenses
    
    
    (14,863,138
    )
    
    
    
    
    
    
    (4,500,585
    )(1)
    
    
    (19,363,723)Other expense
    
    
    (13,769,417
    )
    
    
    
    
    
    
    (2,801,336
    )(2)
    
    
    (16,570,753)Discontinued
operations
    
    
    39,926
    
    
    
    
    
    
    
    
    
    
    
    39,926Net income
    
    $
    11,316,295
    
    
    $
    898,573
    
    
    $
    (7,301,921
    )
    
    $
    4,912,947Total Assets
    
    $
    413,760,683
    
    
    $
    10,000,000
    
    
    $
    5,338,102
    
    
    $
    429,098,785
 
 (1)
    
    Operating expenses includes base management fees, incentive fees, administration fees,
professional fees, insurance expense, directors fees, stockholder-related expenses and general and
administrative expenses that are not practicable to allocate to either operating segment; thus,
these expenses are included in the Other column.(2)
    
    It is not practicable to allocate the interest expense from the line of credit or the
short-term loan to either operating segment; thus, the interest is included in the Other column. 88




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10. Pro Forma Financial Information (unaudited)
  For the year ended December 31,2010
    
    
    2009Operating Data:Total operating revenue
    
    $
    43,031,138
    
    
    $
    43,712,005Total operating expenses
    
    
    (23,997,882
    )
    
    
    (21,123,839
    )Other expense
    
    
    (14,142,012
    )
    
    
    (18,224,883
    )Income from continuing operations
    
    
    4,891,244
    
    
    
    4,363,283Dividends attributable to preferred and senior common stock
    
    
    (4,113,800
    )
    
    
    (4,093,750
    )Net income available from continuing operations to common stockholders
    
    $
    777,444
    
    
    $
    269,533Share and Per Share Data:Basic net income from continuing operations
    
    $
    0.09
    
    
    $
    0.03Diluted net income from continuing operations
    
    $
    0.09
    
    
    $
    0.03Weighted average shares outstanding-basic
    
    
    8,576,303
    
    
    
    8,563,264Weighted average shares outstanding-diluted
    
    
    8,601,153
    
    
    
    8,563,264
 11. Quarterly Financial Information (unaudited)
  89




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Quarter ended March
    
    
    Quarter ended June
    
    
    Quarter ended
    
    
    Quarter ended31, 2010
    
    
    30, 2010
    
    
    September 30, 2010
    
    
    December 31, 2010Operating revenues
    
    $
    10,684,976
    
    
    $
    10,681,387
    
    
    $
    10,334,413
    
    
    $
    10,227,294Operating expenses
    
    
    5,360,386
    
    
    
    5,350,201
    
    
    
    7,282,219
    
    
    
    5,421,766Other expense
    
    
    (4,238,257
    )
    
    
    (4,324,735
    )
    
    
    (1,023,942
    )
    
    
    (3,998,656
    )Income from continuing operations
    
    
    1,086,333
    
    
    
    1,006,451
    
    
    
    2,028,252
    
    
    
    806,872Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    1,086,333
    
    
    
    1,006,451
    
    
    
    2,028,252
    
    
    
    806,872Dividends attributable to preferred and senior common stock
    
    
    (1,023,438
    )
    
    
    (1,023,812
    )
    
    
    (1,027,719
    )
    
    
    (1,038,831
    )Net income available to common stockholders
    
    
    62,895
    
    
    
    (17,361
    )
    
    
    1,000,533
    
    
    
    (231,959
    )Net income available to common stockholders  basic
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.12
    
    
    $
    (0.04
    )Net income available to common stockholders  diluted
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.12
    
    
    $
    (0.04
    )Weighted average shares outstanding  basic
    
    
    8,558,664
    
    
    
    8,545,264
    
    
    
    8,562,777
    
    
    
    8,637,981Weighted average shares outstanding  diluted
    
    
    8,558,664
    
    
    
    8,546,529
    
    
    
    8,577,173
    
    
    
    8,688,900
 Quarter ended March
    
    
    Quarter ended June
    
    
    Quarter ended
    
    
    Quarter ended31, 2009
    
    
    30, 2009
    
    
    September 30, 2009
    
    
    December 31, 2009Operating revenues
    
    $
    10,658,176
    
    
    $
    10,651,489
    
    
    $
    10,657,094
    
    
    $
    10,642,178Operating expenses
    
    
    5,165,052
    
    
    
    5,181,837
    
    
    
    5,069,018
    
    
    
    5,124,622Other expense
    
    
    (4,421,393
    )
    
    
    (4,373,632
    )
    
    
    (4,473,194
    )
    
    
    (4,400,241
    )Income from continuing operations
    
    
    1,071,731
    
    
    
    1,096,020
    
    
    
    1,114,882
    
    
    
    1,117,315Discontinued operations
    
    
    17,838
    
    
    
    20,916
    
    
    
    164,108
    
    
    
    238Net income
    
    
    1,089,569
    
    
    
    1,116,936
    
    
    
    1,278,990
    
    
    
    1,117,553Distributions attributable to preferred stock
    
    
    (1,023,437
    )
    
    
    (1,023,437
    )
    
    
    (1,023,437
    )
    
    
    (1,023,439
    )Net income available to common stockholders
    
    
    66,132
    
    
    
    93,499
    
    
    
    255,553
    
    
    
    94,114Net income available to common stockholders  basic &
diluted
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.01Weighted average shares outstanding  basic & diluted
    
    
    8,563,264
    
    
    
    8,563,264
    
    
    
    8,563,264
    
    
    
    8,563,264
 12. Subsequent Events
    90




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91




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##### Table of Contents



LADSTONE COMMERCIAL CORPORATION
SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2010
 Initial Cost
    
    
    
    
    
    
    Total CostCosts CapitalizedBuildings &
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings &
    
    
    
    
    
    
    Accumulated
    
    
    Net Real
    
    
    DateLocation of Property
    
    Encumbrances
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total(1)
    
    
    Depreciation(2)
    
    
    Estate
    
    
    AcquiredRaleigh, North Carolina
Office Building
    
    $
    4,940,000
    
    
    $
    960,000
    
    
    $
    4,480,772
    
    
    $
    
    
    
    $
    960,000
    
    
    $
    4,480,772
    
    
    $
    5,440,772
    
    
    $
    1,224,039
    
    
    $
    4,216,733
    
    
    
    12/23/2003Canton, Ohio
Office & Warehouse Building
    
    
    2,861,267
    
    
    
    186,739
    
    
    
    3,082,007
    
    
    
    
    
    
    
    186,739
    
    
    
    3,082,007
    
    
    
    3,268,746
    
    
    
    608,863
    
    
    
    2,659,883
    
    
    
    1/30/2004Akron, Ohio
Office & Laboratory Building
    
    
    7,332,602
    
    
    
    1,974,000
    
    
    
    6,769,565
    
    
    
    284,926
    
    
    
    1,974,000
    
    
    
    7,054,491
    
    
    
    9,028,491
    
    
    
    1,189,088
    
    
    
    7,839,403
    
    
    
    4/29/2004Charlotte, North Carolina
Office Building
    
    
    6,802,185
    
    
    
    741,296
    
    
    
    8,423,389
    
    
    
    59,190
    
    
    
    741,296
    
    
    
    8,482,579
    
    
    
    9,223,875
    
    
    
    1,434,701
    
    
    
    7,789,174
    
    
    
    6/30/2004Canton, North Carolina 
Commercial & Manufacturing Building
    
    
    2,641,649
    
    
    
    150,000
    
    
    
    5,050,000
    
    
    
    
    
    
    
    150,000
    
    
    
    5,050,000
    
    
    
    5,200,000
    
    
    
    838,882
    
    
    
    4,361,118
    
    
    
    7/6/2004Snyder Township, Pennsylvania
Commercial & Warehouse Building
    
    
    5,544,454
    
    
    
    100,000
    
    
    
    6,573,902
    
    
    
    156,129
    
    
    
    100,000
    
    
    
    6,730,031
    
    
    
    6,830,031
    
    
    
    1,090,252
    
    
    
    5,739,779
    
    
    
    8/5/2004Lexington, North Carolina
Commercial & Warehouse Building
    
    
    2,809,628
    
    
    
    819,760
    
    
    
    2,106,845
    
    
    
    6,637
    
    
    
    819,760
    
    
    
    2,113,479
    
    
    
    2,933,239
    
    
    
    347,677
    
    
    
    2,585,562
    
    
    
    8/5/2004Austin, Texas
Office Building
    
    
    6,500,000
    
    
    
    1,000,000
    
    
    
    6,295,794
    
    
    
    46,095
    
    
    
    1,000,000
    
    
    
    6,341,889
    
    
    
    7,341,889
    
    
    
    1,047,193
    
    
    
    6,294,696
    
    
    
    9/16/2004Mt. Pocono, Pennsylvania 
Commercial & Manufacturing Building
    
    
    5,179,012
    
    
    
    350,000
    
    
    
    5,818,703
    
    
    
    18,430
    
    
    
    350,000
    
    
    
    5,837,133
    
    
    
    6,187,133
    
    
    
    942,959
    
    
    
    5,244,174
    
    
    
    10/15/2004San Antonio, Texas
Flexible Office Building
    
    
    7,080,146
    
    
    
    843,000
    
    
    
    7,513,750
    
    
    
    22,673
    
    
    
    843,000
    
    
    
    7,536,423
    
    
    
    8,379,423
    
    
    
    1,503,338
    
    
    
    6,876,085
    
    
    
    2/10/2005Columbus, Ohio
Industrial Building
    
    
    2,695,221
    
    
    
    410,000
    
    
    
    2,385,108
    
    
    
    
    
    
    
    410,000
    
    
    
    2,385,108
    
    
    
    2,795,108
    
    
    
    363,906
    
    
    
    2,431,202
    
    
    
    2/10/2005Big Flats, New York
Industrial Building
    
    
    5,630,000
    
    
    
    275,000
    
    
    
    6,459,318
    
    
    
    33,666
    
    
    
    275,000
    
    
    
    6,492,984
    
    
    
    6,767,984
    
    
    
    957,299
    
    
    
    5,810,685
    
    
    
    4/15/2005Wichita, Kansas
Office Building
    
    
    8,316,687
    
    
    
    1,525,000
    
    
    
    9,702,731
    
    
    
    67,611
    
    
    
    1,525,000
    
    
    
    9,770,342
    
    
    
    11,295,342
    
    
    
    1,492,116
    
    
    
    9,803,226
    
    
    
    5/18/2005Arlington, Texas
Warehouse & Bakery Building
    
    
    4,064,745
    
    
    
    635,964
    
    
    
    3,694,876
    
    
    
    45,003
    
    
    
    635,964
    
    
    
    3,739,879
    
    
    
    4,375,843
    
    
    
    553,942
    
    
    
    3,821,901
    
    
    
    5/26/2005Dayton, Ohio
Office Building
    
    
    2,015,496
    
    
    
    525,000
    
    
    
    1,876,992
    
    
    
    119,736
    
    
    
    525,000
    
    
    
    1,996,728
    
    
    
    2,521,728
    
    
    
    402,992
    
    
    
    2,118,736
    
    
    
    6/30/2005Eatontown, New Jersey
Office Building
    
    
    4,580,000
    
    
    
    1,350,630
    
    
    
    3,520,062
    
    
    
    306,681
    
    
    
    1,350,630
    
    
    
    3,826,743
    
    
    
    5,177,373
    
    
    
    572,203
    
    
    
    4,605,170
    
    
    
    7/7/2005Frankling Township, New Jersey Office & Warehouse
Building
    
    
    6,790,000
    
    
    
    1,631,534
    
    
    
    6,199,849
    
    
    
    
    
    
    
    1,631,534
    
    
    
    6,199,849
    
    
    
    7,831,383
    
    
    
    872,739
    
    
    
    6,958,644
    
    
    
    7/11/2005Duncan, South Carolina
Office & Warehouse Building
    
    
    11,188,012
    
    
    
    783,212
    
    
    
    10,790,451
    
    
    
    2,033,148
    
    
    
    783,212
    
    
    
    12,823,599
    
    
    
    13,606,811
    
    
    
    1,704,745
    
    
    
    11,902,065
    
    
    
    7/14/2005Duncan, South Carolina
Manufacturing Building
    
    
    2,781,050
    
    
    
    194,686
    
    
    
    2,682,227
    
    
    
    
    
    
    
    194,686
    
    
    
    2,682,227
    
    
    
    2,876,913
    
    
    
    423,756
    
    
    
    2,453,158
    
    
    
    7/14/2005Hazelwood, Missouri
Office & Warehouse Building
    
    
    2,360,000
    
    
    
    763,178
    
    
    
    2,309,058
    
    
    
    29,962
    
    
    
    763,178
    
    
    
    2,339,020
    
    
    
    3,102,198
    
    
    
    339,523
    
    
    
    2,762,675
    
    
    
    8/5/2005
 92




---



##### Table of Contents



LADSTONE COMMERCIAL CORPORATION
SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 2010
 Initial Cost
    
    
    
    
    
    
    Total CostCosts CapitalizedBuildings &
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings &
    
    
    
    
    
    
    Accumulated
    
    
    Net Real
    
    
    DateLocation of Property
    
    Encumbrances
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total (1)
    
    
    Depreciation (2)
    
    
    Estate
    
    
    AcquiredAngola, Indiana 
Industrial Building
    
    $
    584,212
    
    
    $
    65,780
    
    
    $
    1,074,758
    
    
    $
    
    
    
    $
    65,780
    
    
    $
    1,074,758
    
    
    $
    1,140,538
    
    
    $
    130,045
    
    
    $
    1,010,493
    
    
    
    9/2/2005Angola, Indiana
Industrial Building
    
    
    1,168,415
    
    
    
    131,559
    
    
    
    1,129,874
    
    
    
    
    
    
    
    131,559
    
    
    
    1,129,874
    
    
    
    1,261,433
    
    
    
    260,088
    
    
    
    1,001,345
    
    
    
    9/2/2005Rock Falls, Illinois
Industrial Building
    
    
    311,574
    
    
    
    35,082
    
    
    
    1,113,340
    
    
    
    
    
    
    
    35,082
    
    
    
    1,113,341
    
    
    
    1,148,423
    
    
    
    69,356
    
    
    
    1,079,067
    
    
    
    9/2/2005Newburyport, Massachusetts
Industrial Building
    
    
    6,684,145
    
    
    
    628,690
    
    
    
    6,504,056
    
    
    
    1,846,895
    
    
    
    628,690
    
    
    
    8,350,951
    
    
    
    8,979,641
    
    
    
    1,001,587
    
    
    
    7,978,054
    
    
    
    10/17/2005Clintonville, Wisconsin 
Industrial Manufacturing Building
    
    
    3,338,643
    
    
    
    54,674
    
    
    
    4,717,090
    
    
    
    
    
    
    
    54,674
    
    
    
    4,717,090
    
    
    
    4,771,764
    
    
    
    643,190
    
    
    
    4,128,574
    
    
    
    10/31/2005Maple Heights, Ohio
Industrial Building
    
    
    10,488,260
    
    
    
    1,608,976
    
    
    
    10,065,475
    
    
    
    1,123,464
    
    
    
    1,608,976
    
    
    
    11,188,940
    
    
    
    12,797,916
    
    
    
    1,610,048
    
    
    
    11,187,868
    
    
    
    12/21/2005Richmond, Virginia
Industrial Building
    
    
    5,275,000
    
    
    
    735,820
    
    
    
    5,335,863
    
    
    
    36,437
    
    
    
    735,820
    
    
    
    5,372,300
    
    
    
    6,108,120
    
    
    
    742,177
    
    
    
    5,365,943
    
    
    
    12/30/2005Toledo, Oho
Industrial Building
    
    
    2,929,073
    
    
    
    263,068
    
    
    
    2,811,801
    
    
    
    39,916
    
    
    
    263,068
    
    
    
    2,851,717
    
    
    
    3,114,785
    
    
    
    435,452
    
    
    
    2,679,333
    
    
    
    12/30/2005South Hadley, Massachusetts
Industrial Building
    
    
    2,418,750
    
    
    
    470,636
    
    
    
    2,765,376
    
    
    
    10,000
    
    
    
    470,636
    
    
    
    2,775,376
    
    
    
    3,246,012
    
    
    
    346,479
    
    
    
    2,899,533
    
    
    
    2/15/2006Champaign, Illinois
Office Building
    
    
    1,699,941
    
    
    
    686,979
    
    
    
    2,035,784
    
    
    
    10,546
    
    
    
    686,979
    
    
    
    2,046,330
    
    
    
    2,733,309
    
    
    
    286,905
    
    
    
    2,446,405
    
    
    
    2/21/2006Champaign, Illinois
Office Building
    
    
    3,333,217
    
    
    
    1,347,017
    
    
    
    3,991,733
    
    
    
    
    
    
    
    1,347,017
    
    
    
    3,991,733
    
    
    
    5,338,750
    
    
    
    562,558
    
    
    
    4,776,192
    
    
    
    2/21/2006Champaign, Illinois
Office Building
    
    
    2,083,261
    
    
    
    841,886
    
    
    
    2,494,833
    
    
    
    
    
    
    
    841,886
    
    
    
    2,494,833
    
    
    
    3,336,719
    
    
    
    351,599
    
    
    
    2,985,120
    
    
    
    2/21/2006Champaign, Illinois
Office Building
    
    
    1,905,100
    
    
    
    769,888
    
    
    
    2,281,475
    
    
    
    
    
    
    
    769,888
    
    
    
    2,281,475
    
    
    
    3,051,363
    
    
    
    321,530
    
    
    
    2,729,833
    
    
    
    2/21/2006Roseville, Minnesota
Office Building
    
    
    18,740,559
    
    
    
    2,587,757
    
    
    
    25,290,127
    
    
    
    
    
    
    
    2,587,757
    
    
    
    25,290,126
    
    
    
    27,877,883
    
    
    
    3,842,042
    
    
    
    24,035,841
    
    
    
    2/21/2006Burnsville, Minnesota
Office Building
    
    
    11,716,292
    
    
    
    3,510,711
    
    
    
    8,746,407
    
    
    
    
    
    
    
    3,510,711
    
    
    
    8,746,407
    
    
    
    12,257,118
    
    
    
    1,380,881
    
    
    
    10,876,237
    
    
    
    5/10/2006Menomonee Falls, Wisconsin
Industrial Building
    
    
    6,940,000
    
    
    
    624,700
    
    
    
    6,910,616
    
    
    
    
    
    
    
    624,700
    
    
    
    6,910,616
    
    
    
    7,535,316
    
    
    
    810,716
    
    
    
    6,724,600
    
    
    
    6/30/2006Baytown, Texas
Office Building
    
    
    2,000,000
    
    
    
    221,314
    
    
    
    2,443,469
    
    
    
    
    
    
    
    221,314
    
    
    
    2,443,469
    
    
    
    2,664,783
    
    
    
    323,500
    
    
    
    2,341,283
    
    
    
    7/11/2006Sterling Heights, Michigan
Industrial Building
    
    
    
    
    
    
    2,734,887
    
    
    
    8,606,190
    
    
    
    12,676
    
    
    
    2,734,887
    
    
    
    8,618,866
    
    
    
    11,353,753
    
    
    
    944,550
    
    
    
    10,409,203
    
    
    
    9/22/2006Birmingham, Alabama
Industrial Building
    
    
    
    
    
    
    611,597
    
    
    
    2,325,761
    
    
    
    
    
    
    
    611,597
    
    
    
    2,325,761
    
    
    
    2,937,358
    
    
    
    259,784
    
    
    
    2,677,574
    
    
    
    9/29/2006Montgomery, Alabama
Industrial Building
    
    
    
    
    
    
    221,965
    
    
    
    844,081
    
    
    
    
    
    
    
    221,965
    
    
    
    844,081
    
    
    
    1,066,046
    
    
    
    94,283
    
    
    
    971,764
    
    
    
    9/29/2006
 93




---



##### Table of Contents



GLADSTONE COMMERCIAL CORPORATION
SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 2010
 Initial Cost
    
    
    
    
    
    
    Total CostCosts CapitalizedBuildings &
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings &
    
    
    
    
    
    
    Accumulated
    
    
    Net Real
    
    
    DateLocation of Property
    
    Encumbrances
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total (1)
    
    
    Depreciation (2)
    
    
    Estate
    
    
    AcquiredColumbia, Missouri 
Industrial Building
    
    $
    
    
    
    $
    145,988
    
    
    $
    555,157
    
    
    $
    
    
    
    $
    145,988
    
    
    $
    555,158
    
    
    $
    701,146
    
    
    $
    62,010
    
    
    $
    639,135
    
    
    
    9/29/2006Mason, Ohio
Office Building
    
    
    5,400,000
    
    
    
    797,274
    
    
    
    6,258,344
    
    
    
    47,471
    
    
    
    797,274
    
    
    
    6,305,815
    
    
    
    7,103,089
    
    
    
    810,732
    
    
    
    6,292,357
    
    
    
    1/5/2007Raleigh, North Carolina
Industrial Building
    
    
    5,470,120
    
    
    
    1,605,551
    
    
    
    5,513,353
    
    
    
    
    
    
    
    1,605,551
    
    
    
    5,513,353
    
    
    
    7,118,904
    
    
    
    561,261
    
    
    
    6,557,643
    
    
    
    2/16/2007Tulsa, Oklahoma
Manufacturing Building
    
    
    
    
    
    
    
    
    
    
    14,057,227
    
    
    
    
    
    
    
    
    
    
    
    14,057,227
    
    
    
    14,057,227
    
    
    
    1,619,901
    
    
    
    12,437,326
    
    
    
    3/1/2007Hialeah, Florida
Industrial Building
    
    
    
    
    
    
    3,562,452
    
    
    
    6,671,600
    
    
    
    35,000
    
    
    
    3,562,452
    
    
    
    6,706,600
    
    
    
    10,269,055
    
    
    
    658,492
    
    
    
    9,610,563
    
    
    
    3/9/2007Tewksbury, Massachusetts
Industrial Building
    
    
    
    
    
    
    1,394,902
    
    
    
    8,893,243
    
    
    
    
    
    
    
    1,394,822
    
    
    
    8,893,243
    
    
    
    10,288,065
    
    
    
    894,631
    
    
    
    9,393,434
    
    
    
    5/17/2007Mason, Ohio
Retail Building
    
    
    4,825,041
    
    
    
    1,201,338
    
    
    
    4,960,987
    
    
    
    
    
    
    
    1,201,338
    
    
    
    4,960,987
    
    
    
    6,162,325
    
    
    
    450,106
    
    
    
    5,712,219
    
    
    
    7/1/2007Cicero, New York
Industrial Building
    
    
    4,291,947
    
    
    
    299,066
    
    
    
    5,018,628
    
    
    
    
    
    
    
    299,066
    
    
    
    5,018,628
    
    
    
    5,317,694
    
    
    
    427,155
    
    
    
    4,890,539
    
    
    
    9/6/2007Grand Rapids, Michigan
Office Building
    
    
    9,225,000
    
    
    
    1,629,270
    
    
    
    10,500,066
    
    
    
    
    
    
    
    1,629,270
    
    
    
    10,500,066
    
    
    
    12,129,336
    
    
    
    950,445
    
    
    
    11,178,891
    
    
    
    9/28/2007Bollingbrook, Illinois
Industrial Building
    
    
    4,968,750
    
    
    
    1,271,543
    
    
    
    5,003,124
    
    
    
    
    
    
    
    1,271,543
    
    
    
    5,003,124
    
    
    
    6,274,667
    
    
    
    445,792
    
    
    
    5,828,875
    
    
    
    9/28/2007Decatur, Georgia
Office Building
    
    
    
    
    
    
    784,188
    
    
    
    3,245,281
    
    
    
    
    
    
    
    784,188
    
    
    
    3,245,281
    
    
    
    4,029,469
    
    
    
    266,885
    
    
    
    3,762,585
    
    
    
    12/13/2007Decatur, Georgia
Office Building
    
    
    1,117,698
    
    
    
    204,807
    
    
    
    847,573
    
    
    
    
    
    
    
    204,807
    
    
    
    847,573
    
    
    
    1,052,380
    
    
    
    69,703
    
    
    
    982,677
    
    
    
    12/13/2007Decatur, Georgia
Office Building
    
    
    1,403,002
    
    
    
    257,086
    
    
    
    1,063,925
    
    
    
    
    
    
    
    257,086
    
    
    
    1,063,925
    
    
    
    1,321,011
    
    
    
    87,495
    
    
    
    1,233,516
    
    
    
    12/13/2007Lawrenceville, Georgia
Office Building
    
    
    3,704,723
    
    
    
    678,854
    
    
    
    2,809,365
    
    
    
    
    
    
    
    678,854
    
    
    
    2,809,365
    
    
    
    3,488,219
    
    
    
    231,036
    
    
    
    3,257,183
    
    
    
    12/13/2007Snellville, Georgia
Office Building
    
    
    961,622
    
    
    
    176,208
    
    
    
    729,217
    
    
    
    
    
    
    
    176,208
    
    
    
    729,217
    
    
    
    905,425
    
    
    
    59,969
    
    
    
    845,456
    
    
    
    12/13/2007Covington, Georgia
Office Building
    
    
    1,265,292
    
    
    
    231,852
    
    
    
    959,496
    
    
    
    
    
    
    
    231,852
    
    
    
    959,496
    
    
    
    1,191,348
    
    
    
    78,907
    
    
    
    1,112,440
    
    
    
    12/13/2007Cumming, Georgia
Office Building
    
    
    4,028,089
    
    
    
    738,107
    
    
    
    3,054,580
    
    
    
    
    
    
    
    738,107
    
    
    
    3,054,580
    
    
    
    3,792,687
    
    
    
    251,202
    
    
    
    3,541,484
    
    
    
    12/13/2007Conyers, Georgia
Office Building
    
    
    1,619,574
    
    
    
    296,771
    
    
    
    1,228,155
    
    
    
    
    
    
    
    296,771
    
    
    
    1,228,155
    
    
    
    1,524,926
    
    
    
    101,001
    
    
    
    1,423,925
    
    
    
    12/13/2007Reading, Pennsylvania
Industrial Building
    
    
    5,257,500
    
    
    
    490,646
    
    
    
    6,202,376
    
    
    
    
    
    
    
    490,646
    
    
    
    6,202,376
    
    
    
    6,693,022
    
    
    
    466,134
    
    
    
    6,226,888
    
    
    
    1/29/2008Fridley, Minnesota 
Office Building
    
    
    
    
    
    
    1,354,233
    
    
    
    8,073,526
    
    
    
    
    
    
    
    1,354,233
    
    
    
    8,073,526
    
    
    
    9,427,759
    
    
    
    892,652
    
    
    
    8,535,107
    
    
    
    2/26/2008Concord Township, Ohio 
Industrial Building
    
    
    
    
    
    
    1,796,467
    
    
    
    11,154,123
    
    
    
    
    
    
    
    1,786,212
    
    
    
    11,154,123
    
    
    
    12,940,335
    
    
    
    846,077
    
    
    
    12,094,258
    
    
    
    3/31/2008
 94




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##### Table of Contents



GLADSTONE COMMERCIAL CORPORATION
SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2010
 Initial Cost
    
    
    
    
    
    
    Total CostCosts CapitalizedBuildings &
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings &
    
    
    
    
    
    
    Accumulated
    
    
    Net Real
    
    
    DateLocation of Property
    
    Encumbrances
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total (1)
    
    
    Depreciation (2)
    
    
    Estate
    
    
    AcquiredPineville, North Carolina 
Industrial Building
    
    $
    2,145,000
    
    
    $
    669,025
    
    
    $
    3,028,320
    
    
    $
    6,000
    
    
    $
    669,025
    
    
    $
    3,034,322
    
    
    $
    3,703,345
    
    
    $
    213,759
    
    
    $
    3,489,586
    
    
    
    4/30/2008Marietta, Ohio 
Industrial Building
    
    
    4,500,000
    
    
    
    829,014
    
    
    
    6,607,265
    
    
    
    
    
    
    
    829,014
    
    
    
    6,607,265
    
    
    
    7,436,279
    
    
    
    400,169
    
    
    
    7,036,110
    
    
    
    8/29/2008Chalfont, Pennsylvania 
Industrial Building
    
    
    6,162,508
    
    
    
    1,249,415
    
    
    
    6,419,607
    
    
    
    
    
    
    
    1,249,415
    
    
    
    6,419,607
    
    
    
    7,669,022
    
    
    
    464,665
    
    
    
    7,204,357
    
    
    
    8/29/2008Orange City, Iowa 
Office and Warehouse Building
    
    
    10,795,003
    
    
    
    132,100
    
    
    
    9,382,794
    
    
    
    
    
    
    
    132,100
    
    
    
    9,382,794
    
    
    
    9,514,894
    
    
    
    22,296
    
    
    
    9,492,598
    
    
    
    12/7/2010$
    260,869,463
    
    
    $
    55,168,142
    
    
    $
    339,460,840
    
    
    $
    6,398,293
    
    
    $
    55,157,807
    
    
    $
    345,859,133
    
    
    $
    401,016,940
    
    
    $
    43,659,456
    
    
    $
    357,357,484
 
 (1)
    
    The aggregate cost for land and building improvements for
federal income tax purposes is the same as the total gross cost of land and
building improvements.(2)
    
    Depreciable life of all buildings is 39 years. Depreciable life
of all improvements is the shorter of the useful life of the assets or the life
of the respective leases on each building, which range from 5-20 years. 95




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##### Table of Contents



2010
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    390,753,892
    
    
    $
    390,562,138
    
    
    $
    340,500,406Acquisitions during period
    
    
    8,900,830
    
    
    
    
    
    
    
    47,874,020Improvements or other
additions
    
    
    1,362,218
    
    
    
    1,139,711
    
    
    
    2,187,712Dispositions during period
    
    
    
    
    
    
    (947,957
    )
    
    
    Balance at end of period
    
    $
    401,016,940
    
    
    $
    390,753,892
    
    
    $
    390,562,138
  2010
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    34,111,952
    
    
    $
    24,757,576
    
    
    $
    15,738,634Additions during period
    
    
    9,547,504
    
    
    
    9,445,768
    
    
    
    9,018,942Dispositions during period
    
    
    
    
    
    
    (91,392
    )
    
    
    Balance at end of period
    
    $
    43,659,456
    
    
    $
    34,111,952
    
    
    $
    24,757,576
 96




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##### Table of Contents



GLADSTONE COMMERCIAL CORPORATION
SCHEDULE IV  MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2010
 Principal Amount ofLoans Subject toDelinquentLocation and Type
    
    
    
    
    
    
    
    
    
    
    
    
    
    Face Amount of
    
    
    Carrying Amount of
    
    
    Principal orof Real Estate
    
    Type of Loan
    
    Interest Rate
    
    Final Maturity Date
    
    Periodic Payment Term
    
    Prior Lien
    
    
    Mortgage
    
    
    Mortgage(1)
    
    
    InterestMcLean, Virginia; Office Property
    
    First Mortgage
    
    1 month LIBOR +6%; Floor of 7.5%, Ceiling of 10%
    
    5/30/2017
    
    Monthly payment based upon a 24 year amortization term, which changes based on LIBOR,
 with a floor of 7.5% and a ceiling of 10%. Payments are interest only until June 2011.
  Balloon payment at maturity is $8,221,344.
    
    
    
    
    
    $
    10,000,000
    
    
    $
    
    
    
    $
    $
    10,000,000
    
    
    $
    
 
 (1)
    
    The mortgage loan was repaid in full on July 22, 2010.  2010
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    10,000,000
    
    
    $
    10,000,000
    
    
    $
    10,000,000Collections of principal
    
    
    (10,000,000
    )
    
    
    
    
    
    
    Balance at end of period
    
    $
    
    
    
    $
    10,000,000
    
    
    $
    10,000,000
 97




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures
 a) Evaluation of Disclosure Controls and Procedures
  b) Managements Annual Report on Internal Control Over Financial Reporting
  c) Attestation Report of the Registered Public Accounting Firm
  d) Changes in Internal Control over Financial Reporting
  
 Item 9B. Other Information
  98




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##### Table of Contents



PART III
  
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
  99




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 a. DOCUMENTS FILED AS PART OF THIS REPORT
               100




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##### Table of Contents



Exhibit Index
 Exhibit Number
    
    Exhibit Description3.1
    
    
    Articles of Amendment and Restatement to Articles of
Incorporation, incorporated by reference to Exhibit 3.1 to
the Registration Statement on Form S-11 (File No.
333-106024), filed June 11, 2003.3.1.1
    
    
    Articles Supplementary Establishing and Fixing the Rights
and Preferences of the 7.75% Series A Cumulative Redeemable
Preferred Stock, incorporated by reference to Exhibit 3.3
of Form 8-A12G (File No. 000-50363), filed January 19,
2006.3.1.2
    
    
    Articles of Amendment to Articles Supplementary
Establishing and Fixing the Rights and Preferences of 7.75%
Series A Cumulative Redeemable Preferred Stock,
incorporated by reference to Exhibit 99.1 of Form 8-K,
filed on April 13, 2006.3.1.3
    
    
    Articles Supplementary Establishing and Fixing the Rights
and Preferences of the 7.5% Series B Cumulative Redeemable
Preferred Stock, incorporated by reference to Exhibit 3.4
of Form 8-A12B (File No. 000-50363), filed October 19,
2006.3.1.4
    
    
    Articles of Amendment to Articles of Amendment and
Restatement to Articles of Incorporation, incorporated by
reference to Exhibit 3.1.1 to the Quarterly Report on Form
10-Q, filed July 30, 2009.3.1.5
    
    
    Articles Supplementary, incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K, filed March
19, 2010.3.1.6
    
    
    Articles Supplementary, incorporated by reference to
Exhibit 3.1 of the Current Report on Form 8-K, filed
September 9, 2010.3.1.7
    
    
    Articles Supplementary, incorporated by reference to
Exhibit 3.2 of the Current Report on Form 8-K, filed
September 9, 2010.3.2
    
    
    Bylaws, incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-11 (File No. 333-106024),
filed June 11, 2003.3.2.1
    
    
    First Amendment to Bylaws, incorporated by reference to
Exhibit 99.1 of the Current Report on Form 8-K, filed July
10, 2007.4.1
    
    
    Form of Certificate for Common Stock of Gladstone
Commercial Corporation, incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-11
(File No. 333-106024), filed August 8, 2003.4.2
    
    
    Form of Certificate for 7.75% Series A Cumulative
Redeemable Preferred Stock of Gladstone Commercial
Corporation, incorporated by reference to Exhibit 4.1 of
Form 8-A12G (File No. 000-50363), filed January 19, 2006.4.3
    
    
    Form of Certificate for 7.5% Series B Cumulative Redeemable
Preferred Stock of Gladstone Commercial Corporation,
incorporated by reference to Exhibit 4.2 of Form 8-A12B
(File No. 001-33097), filed October 19, 2006.10.1
    
    
    Real Property Purchase and Sale Agreement (Canada) between
3058348 Nova Scotia Company, 3058349 Nova Scotia Company
and Gladstone Commercial Limited Partnership, dated August
11, 2004, incorporated by reference to Exhibit 10.4 to the
Form 10-K (File No. 000-50363), filed March 8, 2005
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##### Table of Contents



Exhibit Number
    
    Exhibit Description10.2
    
    
    Real Property Purchase and Sale Agreement (United States)
between PBC Pocono, L.L.C., PBC Norfolk, L.L.C. and
Gladstone Commercial Limited Partnership, dated August 11,
2004, incorporated by reference to Exhibit 10.5 to the Form
10-K (File No. 000-50363), filed March 8, 2005.10.3
    
    
    Promissory Note between Key Bank National Association and
CMI04 Canton NC LLC, dated March 14, 2005, incorporated by
reference to Exhibit 10.1 of the Quarterly Report on Form
10-Q for the quarter ended March 31, 2005 (File No.
000-50363), filed May 4, 2005.10.4
    
    
    Loan Agreement between AFL05 Duncan SC LLC and Little Arch
Charlotte NC LLC and Bank of America, N.A., dated as of
August 25, 2005, incorporated by reference to Exhibit 10.4
of the Current Report on Form 8-K (File No. 000-50363),
filed August 29, 2005.10.5
    
    
    Promissory Note between AFL05 Duncan SC LLC and Little Arch
Charlotte NC LLC and Bank of America, N.A., dated as of
August 25, 2005, incorporated by reference to Exhibit 10.5
of the Current Report on Form 8-K (File No. 000-50363),
filed August 29, 2005.10.6
    
    
    Mortgage and Security Agreement between 260 Springside
Drive, Akron OH LLC and JP Morgan Chase Bank, N.A., dated
as of September 12, 2005, incorporated by reference to
Exhibit 10.6 of the Current Report on Form 8-K (File No.
000-50363), filed September 13, 2005.10.7
    
    
    Fixed Rate Note between 260 Springside Drive, Akron OH LLC
and JP Morgan Chase Bank, N.A., dated as of September 12,
2005, incorporated by reference to Exhibit 10.7 of the
Current Report on Form 8-K (File No. 000-50363), filed
September 13, 2005.10.8
    
    
    Loan Agreement between PZ05 Maple Heights OH LLC, WMI05
Columbus OH LLC, and OB Crenshaw GCC, LP, and Countrywide
Commercial Real Estate Finance, Inc., dated as of December
21, 2005, incorporated by reference to Exhibit 10.8 of the
Current Report on Form 8-K (File No. 000-50363), filed
December 22, 2005.10.9
    
    
    Promissory Note between PZ05 Maple Heights OH LLC, WMI05
Columbus OH LLC, and OB Crenshaw GCC, LP, and Countrywide
Commercial Real Estate Finance, Inc., dated as of December
21, 2005, incorporated by reference to Exhibit 10.9 of the
Current Report on Form 8-K (File No. 000-50363), filed
December 22, 2005.10.10
    
    
    First Amended and Restated Agreement of Limited Partnership
of Gladstone Commercial Limited Partnership, incorporated
by reference to Exhibit 10.1 of the Current Report on Form
8-K, filed February 1, 2006.10.11
    
    
    Mortgage and Absolute Assignment of Rents and Leases and
Security Agreement (and Fixture Filing) between Stonewater
Dox Funding LLC and Wells Fargo Bank, National Association,
dated as of November 21, 2003, incorporated by reference to
Exhibit 10.20 of the Current Report on Form 8-K (File No.
000-50363), filed February 24, 2006.10.12
    
    
    Assumption Agreement between Stonewater Dox Funding LLC,
Stonewater Funding, LLC, ACI06 Champaign IL LLC, Gladstone
Commercial Corporation and LaSalle Bank National
Association, dated as of February 21, 2006, incorporated by
reference to Exhibit 10.21 of the Current Report on Form
8-K (File No. 000-50363), filed February 24, 2006.10.13
    
    
    Promissory Note Secured by Mortgage between Stonewater Dox
Funding LLC and Wells Fargo Bank, National Association,
dated as of November 21, 2003, incorporated by reference
to Exhibit 10.22 of the Current Report on Form 8-K (File
No. 000-50363), filed February 24, 2006.
 102




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##### Table of Contents



Exhibit Number
    
    Exhibit Description10.14
    
    
    Purchase Agreement between Stonewater UIS Funding LLC and
Gladstone Commercial Limited Partnership, dated as of
November 23, 2005, as the same has been modified by that
certain Amendment to Purchase Agreement dated December 22,
2005, that certain Amendment to Purchase Agreement dated
December 30, 2005, that certain Amendment to Purchase
Agreement dated January 6, 2006, that certain Amendment to
Purchase Agreement dated January 13, 2006, that certain
Amendment to Purchase Agreement dated January 17, 2006 and
that certain Amendment to Purchase Agreement dated January
20, 2006., incorporated by reference to Exhibit 10.23 of
the Current Report on Form 8-K (File No. 000-50363), filed
February 24, 2006.10.15
    
    
    Mortgage, Assignment of Rents and Security Agreement
between Stonewater Funding LLC and Greenwich Capital
Financial Products, Inc. dated as of May 12, 2004,
incorporated by reference to Exhibit 10.24 of the Current
Report on Form 8-K (File No. 000-50363), filed February 24,
2006.10.16
    
    
    Loan Assumption Agreement between Stonewater UIS Funding
LLC, Stonewater Funding, LLC, and UC06 Roseville MN LLC,
Gladstone Commercial Corporation and LaSalle Bank National
Association, dated as of February 21, 2006, incorporated by
reference to Exhibit 10.25 of the Current Report on Form
8-K (File No. 000-50363), filed February 24, 2006.10.17
    
    
    Promissory Note between Stonewater UIS Funding LLC and
Greenwich Capital Financial Products, Inc. dated as of May
12, 2004, incorporated by reference to Exhibit 10.26 of the
Current Report on Form 8-K (File No. 000-50363), filed
February 24, 2006.10.18
    
    
    Purchase Agreement between Stonewater UIS Funding LLC and
Gladstone Commercial Limited Partnership, dated as of
November 23, 2005, as the same has been modified by that
certain Amendment to Purchase Agreement dated December 22,
2005, that certain Amendment to Purchase Agreement dated
December 30, 2005, that certain Amendment to Purchase
Agreement dated January 6, 2006, that certain Amendment to
Purchase Agreement dated January 13, 2006, that certain
Amendment to Purchase Agreement dated January 17, 2006 and
that certain Amendment to Purchase Agreement dated January
20, 2006, incorporated by reference to Exhibit 10.27 of the
Current Report on Form 8-K (File No. 000-50363), filed
February 24, 2006.10.19
    
    
    Loan Agreement between IXIS Real Estate Capital Inc. and
2525 N Woodlawn Vstrm Wichita KS, LLC, CI05 Clintonville WI
LLC and MSI05-3 LLC, dated as of April 27, 2006,
incorporated by reference to Exhibit 10.29 of the Quarterly
Report on Form 10-Q (File No. 000-50363), filed May 2,
2006.10.20
    
    
    Promissory Note between IXIS Real Estate Capital Inc. and
2525 N Woodlawn Vstrm Wichita KS, LLC, CI05 Clintonville WI
LLC and MSI05-3 LLC, dated as of April 27, 2006,
incorporated by reference to Exhibit 10.30 of the Quarterly
Report on Form 10-Q (File No. 000-50363), filed May 2,
2006.10.21
    
    
    Custodial Service Agreement and Fee Schedule between Branch
Banking and Trust Company of Virginia, and Gladstone
Commercial Corporation, dated as of May 1, 2006,
incorporated by reference to Exhibit 10.33 of the Quarterly
Report on Form 10-Q (File No. 000-50363), filed August 8,
2006.10.22
    
    
    Gladstone Commercial Limited Partnership Schedule 4.2(a)(2)
to First Amended and Restated Agreement of Limited
Partnership Designation of 7.50% Series B Cumulative
Redeemable Preferred Units, incorporated by reference to
Exhibit 10.1 of the Current Report on Form 8-K, filed
October 25, 2006.
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##### Table of Contents



Exhibit Number
    
    Exhibit Description10.23
    
    
    Deed of Trust, Assignment of Leases and Rents and Security
Agreement between First Park Ten COCO San Antonio, L.P. and
CIBC Inc., dated as of November 22, 2006, incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K
(File No. 001-33097), filed November 28, 2006.10.24
    
    
    Deed of Trust, Assignment of Leases and Rents and Security
Agreement between SLEE Grand Prairie, L.P. and CIBC Inc.,
dated as of November 22, 2006, incorporated by reference to
Exhibit 10.2 of the Current Report on Form 8-K (File No.
001-33097), filed November 28, 2006.10.25
    
    
    Deed of Trust, Assignment of Leases and Rents and Security
Agreement between OB Midway NC Gladstone Commercial LLC,
and CIBC Inc., dated as of November 22, 2006, incorporated
by reference to Exhibit 10.3 of the Current Report on Form
8-K (File No. 001-33097), filed November 28, 2006.10.26
    
    
    Promissory Note First Park Ten COCO San Antonio, L.P., SLEE
Grand Prairie, L.P. and OB Midway NC Gladstone Commercial
LLC and CIBC Inc., dated as of November 22, 2006,
incorporated by reference to Exhibit 10.4 of the Current
Report on Form 8-K (File No. 001-33097), filed November 28,
2006.10.27
    
    
    Mortgage, Assignment of Leases and Rents and Security
Agreement between HMBF05 Newburyport MA LLC and CIBC Inc.,
dated as of December 22, 2006, incorporated by reference to
Exhibit 10.1 of the Current Report on Form 8-K (File No.
001-33097), filed December 28, 2006.10.28
    
    
    Open-end Mortgage, Assignment of Leases and Rents and
Security Agreement between SVMMC05 Toledo OH LLC and CIBC
Inc., dated as of December 22, 2006, incorporated by
reference to Exhibit 10.2 of the Current Report on Form 8-K
(File No. 001-33097), filed December 28, 2006.10.29
    
    
    Mortgage, Assignment of Leases and Rents and Security
Agreement between TCI06 Burnsville MN LLC and CIBC Inc.,
dated as of December 22, 2006, incorporated by reference to
Exhibit 10.3 of the Current Report on Form 8-K (File No.
001-33097), filed December 28, 2006.10.30
    
    
    Promissory Note between HMBF05 Newburyport MA LLC, SVMMC05
Toledo OH LLC and TCI06 Burnsville MN LLC and CIBC Inc.,
dated as of December 22, 2006, incorporated by reference to
Exhibit 10.4 of the Current Report on Form 8-K (File No.
001-33097), filed December 28, 2006.10.31
    
    
    Amended and Restated Investment Advisory Agreement between
Gladstone Commercial Corporation and Gladstone Management
Corporation, dated January 1, 2007 incorporated by
reference to Exhibit 99.1 of the Current Report on Form 8-K
(File No. 001-33097), filed January 3, 2007 (renewed on
July 8, 2009).10.32
    
    
    Administration Agreement between Gladstone Commercial
Corporation and Gladstone Administration, LLC, dated
January 1, 2007 incorporated by reference to Exhibit 99.2
of the Current Report on Form 8-K (File No. 001-33097),
filed January 3, 2007 (renewed on July 8, 2009).10.33
    
    
    Open Market Sale Agreement by and among Gladstone
Commercial Corporation, Gladstone Commercial Limited
Partnership and Jefferies & Company, Inc., incorporated by
reference to Exhibit 1.1 of the Form 8-K (File No.
001-33097), filed November 4, 2009.
 104




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##### Table of Contents



Exhibit Number
    
    Exhibit Description10.34
    
    
    Amendment to First Amended and Restated Agreement of
Limited Partnership of Gladstone Commercial Limited
Partnership, incorporated by reference to Exhibit 10.1 of
the Current Report on Form 8-K, filed April 29, 2010.10.35
    
    
    Gladstone Commercial Limited Partnership Schedule 4.2(a)(3)
to First Amended and Restated Agreement of Limited
Partnership; Designation of Senior Common Units,
incorporated by reference to Exhibit 10.2 of the Current
Report on Form 8-K, filed April 29, 2010.10.36
    
    
    Amended and Restated Dealer Manager Agreement, dated
December 22, 2009, by and between Gladstone Commercial
Corporation and Halcyon Capital Markets, LLC, incorporated
by reference to Exhibit 10.39 of the Annual Report on Form
10-K (File No. 001-33097), filed on February 24, 2010.10.37
    
    
    Amended and Restated Dealer Manager Agreement, effective as
of December 22, 2009, by and between Gladstone Commercial
Corporation and Halcyon Capital Markets, LLC, incorporated
by reference to Exhibit 10.40 of the Annual Report on Form
10-K (File No. 001-33097), filed on February 24, 2010.10.38
    
    
    Credit Agreement, dated as of December 28, 2010, by and
among Gladstone Commercial Limited Partnership, Gladstone
Commercial Corporation, each of the financial institutions
initially a signatory thereto together with their
successors and assignees under Section 12.6 thereof and
Capital One, N.A., incorporated by reference to Exhibit
10.1 of the Current Report on Form 8-K, filed December 30,
2010.11
    
    
    Computation of Per Share Earnings from Operations (included
in the notes to the audited financial statements contained
in this Report.12
    
    
    Statements re: computation of ratios (included in Selected
Financial Data contained in this Form 10-K).14
    
    
    Gladstone Commercial Corporation Code of Business Conduct
and Ethics, dated October 11, 2005, incorporated by
reference to Exhibit 14.1 to Current Report on Form 8-K
(File No. 000-50363), filed October 12, 2005.31.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002 (filed
herewith).31.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002 (filed
herewith).32.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 (furnished
herewith).32.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 (furnished
herewith).
 105




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##### Table of Contents



Gladstone Commercial CorporationDate: March 8, 2011
    By:
    /s/ Danielle JonesDanielle Jones
Chief Financial Officer  Date: March 8, 2011
    
    By:
    
    /s/ David GladstoneDavid Gladstone
Chief Executive Officer and Chairman of the Board of Directors
(principal executive officer)Date: March 8, 2011
    
    By:
    
    /s/ Terry Lee BrubakerTerry Lee Brubaker
Vice Chairman, Chief Operating Officer and DirectorDate: March 8, 2011
    
    By:
    
    /s/ George Stelljes IIIGeorge Stelljes III
President, Chief Investment Officer and DirectorDate: March 8, 2011
    
    By:
    
    /s/ Danielle JonesDanielle Jones
Chief Financial Officer
(principal financial and accounting officer)Date: March 8, 2011
    
    By:
    
    /s/ David A.R. DullumDavid A.R. Dullum
DirectorDate: March 8, 2011
    
    By:
    
    /s/ Anthony W. ParkerAnthony W. Parker
DirectorDate: March 8, 2011
    
    By:
    
    /s/ Michela A. EnglishMichela A. English
Director
 106




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##### Table of Contents



Date: March 8, 2011
    
    By:
    
    /s/ Paul AdelgrenPaul Adelgren
DirectorDate: March 8, 2011
    
    By:
    
    /s/ John OutlandJohn Outland
DirectorDate: March 8, 2011
    
    By:
    
    /s/ Gerard MeadGerard Mead
DirectorDate: March 8, 2011
    
    By:
    
    /s/ John ReillyJohn Reilly
Director
 107